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The lowering of Bank Rate by the Reserve Bank of India leads to
1. More liquidity in the market
2. Less liquidity in the market
3. No change in the liquidity in the market
4. Mobilization of more deposits by commercial banks

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Correct Answer - Option 1 : More liquidity in the market

The correct answer is More liquidity in the market.

  • Bank Rate
    • It is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans.
    • When a bank suffers fund deficiency, it can borrow money from RBI to continue services.
    • When Bank Rate is increased by the central bank, a commercial bank’s borrowing costs hikes, which reduce the supply of money in the market.
  • Any reduction in the bank rate and the repo rate will lead to borrowers getting loans at lower interest rates.
  • The lowering of the Bank Rate makes the domestic banks borrow money at a cheap rate which in turn increased the liquidity in the market.
  • Current Policy Rates-
    • Policy Repo Rate: 4.00%
    • Reverse Repo Rate: 3.35%
    • Marginal Standing Facility Rate: 4.25%
    • Bank Rate: 4.25%
  • Current Reserve Ratios-
    • CRR: 3%
    • SLR: 18.00%

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