WBCS.LIVE practice question

What is the primary definition of the Bank Rate in India?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. The rate at which commercial banks lend to the public.
  2. The rate at which the RBI borrows from commercial banks.
  3. The rate at which the RBI lends long-term funds to commercial banks.
  4. The rate at which commercial banks maintain deposits with the RBI.

Correct answer and explanation

Correct answer: The rate at which the RBI lends long-term funds to commercial banks.

Explanation: āœ… Correct Answer: C) The rate at which the RBI lends long-term funds to commercial banks. šŸ“š Explanation: The Bank Rate is the official interest rate at which the Reserve Bank of India provides long-term loans to commercial banks without any collateral. It is a key quantitative tool used by the central bank to control the domestic money supply and manage inflation. When inflation is high, the RBI increases the bank rate to make borrowing more expensive, thereby reducing liquidity in the economy.