What will be the impact if RBI reduces Bank rate by 1%?

Q.  What will be the impact if Reserve Bank of India reduces the Bank Rate by 1%?
- Published on 13 Feb 17

a. Less liquidity in the market
b. More liquidity in the market
c. No change in the market liquidity
d. Mobilization of more deposits by commercial banks

ANSWER: More liquidity in the market
Market liquidity is a market's ability to facilitate an asset being bought or sold quickly without having to drastically change its price i.e. stable market.

Bank rate is the interest rate at which banks borrows loan from RBI.

RBI reduces the bank rate when supply of the money is low in the country.

Now banks are getting loans at cheaper rate of interest, so banks will start giving loans at lower interest rates, supply of the money will go up in the country.

Purchasing power of individual will increase, in result demand for the goods will increase, supply will meet the demand.

Reducing Bank rate is one of the Quantitative measure in Monetary policy.

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