{"id":1980,"date":"2024-03-31T00:14:42","date_gmt":"2024-03-30T18:44:42","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1980"},"modified":"2024-04-03T07:01:03","modified_gmt":"2024-04-03T01:31:03","slug":"q-an-increase-in-the-bank-rate-generally-indicates-that-the","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-an-increase-in-the-bank-rate-generally-indicates-that-the","title":{"rendered":"Q.\u00a0An increase in the Bank Rate generally indicates that the"},"content":{"rendered":"\n<ul class=\"mcq wp-block-list\">\n<li>Market rate of interest is likely to fall<\/li>\n\n\n\n<li>Central Bank is no longer making loans to commercial banks<\/li>\n\n\n\n<li>Central Bank is following an easy money policy<\/li>\n\n\n\n<li>Central Bank is following a tight money policy<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (d) Central Bank is following a tight money policy<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"bank-rate\"><strong>Bank Rate<\/strong>:<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Bank Rate<\/strong>\u00a0is the interest rate at which a\u00a0<strong>country\u2019s central bank lends money to domestic\/commercial banks<\/strong>, usually in the form of relatively\u00a0<strong>short-term loans<\/strong>.\n<ul class=\"wp-block-list\">\n<li>In India, the central bank is the&nbsp;<strong>Reserve Bank of India (RBI)<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Commercial banks are not required to keep any collateral as security<\/strong>\u00a0when borrowing at Bank Rate.\n<ul class=\"wp-block-list\">\n<li>There is no repurchasing agreement and obligation to repay on a particular date.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Section 49 of the Reserve Bank of India Act, 1934<\/strong>, governs the publication of the Bank Rate.<\/li>\n\n\n\n<li>This rate is<strong>&nbsp;linked to the MSF rate<\/strong>, therefore it adjusts automatically when the MSF rate changes, as well as when the policy repo rate changes.&nbsp;<strong>Bank rate is slightly higher than Repo Rate.<\/strong><\/li>\n\n\n\n<li><strong>Determination of Bank Rate<\/strong>:\n<ul class=\"wp-block-list\">\n<li>The Reserve Bank of India (RBI) is the authority in India to determine the Bank Rate.<\/li>\n\n\n\n<li>The RBI in its&nbsp;<strong>bi-monthly monetary policy review<\/strong>&nbsp;announces the bank rate based on the macroeconomic situation.<\/li>\n\n\n\n<li>The Bank Rate is announced keeping in mind the primary goal of inflation targeting.<\/li>\n\n\n\n<li>If the&nbsp;<strong>Bank rate is decreased then it increases the money supply<\/strong>&nbsp;in the economy as the banks borrow and lend it to customers. On the other hand,&nbsp;<strong>if the Bank rate is increased it will inhibit the money supply<\/strong>&nbsp;in the economy.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h6 class=\"wp-block-heading\" id=\"Diff\">Difference between Bank Rate and Repo Rate<\/h6>\n\n\n\n<figure class=\"wp-block-table\"><table><thead><tr><th>Parameter<\/th><th>Bank Rate<\/th><th>Repo Rate<\/th><\/tr><\/thead><tbody><tr><td><strong>Meaning<\/strong><\/td><td>The Bank Rate is applied to loans made by the central bank to commercial banks.<\/td><td>Repo Rate is applied to the central bank\u2019s repurchase of securities sold by commercial banks.<\/td><\/tr><tr><td><strong>Collateral<\/strong><\/td><td>No collateral is required<\/td><td>Securities, bonds and agreements are given as collateral<\/td><\/tr><tr><td><strong>Impact<\/strong><\/td><td>Directly impact customers as it impacts long term lending.<\/td><td>The Repo rate is handled by the banks and doesn\u2019t impact the customers directly.<\/td><\/tr><tr><td><strong>Rate<\/strong><\/td><td>Higher than Repo due to no collateral and long term nature.<\/td><td>Lower than Bank Rate as there is a collateral and repurchase obligation.<\/td><\/tr><tr><td><strong>Duration of loan<\/strong><\/td><td>Bank rate caters to long term requirements of commercial banks<\/td><td>Repo Rate focuses on short term financial lending.<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Answer: (d) Central Bank is following a tight money policy Bank Rate: Difference between Bank Rate and Repo Rate Parameter Bank Rate Repo Rate Meaning The Bank Rate is applied to loans made by the central bank to commercial banks. Repo Rate is applied to the central bank\u2019s repurchase of securities sold by commercial banks&#8230;.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[60],"class_list":["post-1980","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-60"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":60,"label":"2013"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1980","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1980"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1980\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1980"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1980"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1980"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1980"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}