A decrease in bank rate by the RBI leads to ______.

Higher liquidity in the market.

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Lower liquidity in the market.

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Reduction in inflation.

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None of the above

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Solution

The correct option is A Higher liquidity in the market.
Bank rate refers to the rate at which RBI provides long-term borrowings to its clients. A decrease in bank rate will make borrowing from RBI cheap which will eventually lead to an increase in the money supply in the market i.e. higher liquidity.

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Similar questions

To reduce the liquidity in the market, RBI can perform which of the following operations?

i. Increase policy rate
ii. Increase cash reserve requirements
iii. Increase the statutory liquidity ratio

Q. Consider the following statements with respect to Cash Reserve Ratio (CRR):

Which of the statements given above is/are correct?

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