UPSC CSE Prelims
Question 3
The lowering of Bank Rate by the Reserve Bank of India leads to
View correct answer and explanation
Correct answer: A
Correct Option: A
Explanation: A reduction in RBI’s Bank Rate represents easier monetary conditions and tends to lower the cost of credit, supporting lending and liquidity, other things equal.
Option-wise Analysis:
A: Correct - cheaper central-bank credit can expand liquidity and borrowing.
B: Incorrect - Less liquidity is more typical of a rate increase or tightening.
C: Incorrect - It is not generally neutral for credit conditions.
D: Incorrect - Lower lending rates do not by themselves imply a mobilisation of more bank deposits.