Official Answer Key & Detailed Solution
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Correct Answer: Option (A) — More liquidity in the market
Concept & Option Breakdown
Standard Reference VerifiedWhen the central bank lowers the Bank Rate, borrowing costs for commercial banks decrease. Commercial banks pass this benefit on by lowering their lending rates to businesses and consumers. Cheaper credit stimulates borrowing and capital expenditure, thereby expanding money supply and infusing more liquidity into the market.
Lower policy rate $\rightarrow$ Cheaper loans $\rightarrow$ Credit expansion $\rightarrow$ Increased market liquidity.
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