Bank Rate and Monetary Policy

The Bank Rate is the rate at which the central bank (RBI in India) lends money to commercial banks. An increase in the Bank Rate makes borrowing more expensive for commercial banks, which they pass on to consumers by increasing lending rates. This is a contractionary or 'tight money' policy tool used to reduce money supply and control inflation. Option (a) is incorrect as higher bank rates lead to higher, not lower, market interest rates. Option (b) is not implied by a rate increase - it's a policy tool, not a cessation of lending. Option (c) is opposite to the effect - higher rates indicate tight money, not easy money. > Bank Rate Increase = Tight Money Policy (reduces inflation). Answer: (d).