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Q42 (CAPF/2008) Economy › Money, Banking & Inflation › Monetary policy tools Answer Verified

Bank rate is the rate at which the Reserve Bank of India provides loans to—

Result
Your answer: —  ·  Correct: B
Explanation

The Bank Rate is the standard rate at which the Reserve Bank of India (RBI) is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under the RBI Act, 1934. In practice, it is the rate of interest at which the RBI provides long-term loans and advances to Scheduled Commercial Banks (SCBs) [1]. Unlike the repo rate, which involves short-term lending against collateral, the Bank Rate is typically applied to loans provided without any approved securities [1]. As the 'Banker to Banks,' the RBI uses this rate to influence the cost of credit in the economy; an increase in the Bank Rate makes borrowing more expensive for commercial banks, thereby reducing the money supply. While the RBI regulates other entities like NBFCs, the Bank Rate specifically serves as a benchmark for lending to the commercial banking sector [1].

Sources

  1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > 1. Bank Rate > p. 165
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