how wil reduction in bank rate affect the avilability of credit?

Answer 1

Generally, a lower rate means that people will borrow more, or at least thats what Monetary Theory believes. The Federal Reserve will lower rates when they want credit to be more widely available (see current housing bubble) and then raise rates when they want people to stop borrowing, i.e. contract credit.

Answer 2

Bank rate is the rate at which the commercial banks borrow from reserve bank of india. Normally this rate is taken as benchmark rate while fixing the rate on advances of the bank. Thus it raises and falls along with bank rate. When the rate on advances are high, commercial activity prefers to lower the bank credit and increases the other forms of finance and so is the converse.

Answer 3

Rduction in bank rates takes away many savers from Banks to other investment opportunities like mutula funds, stock market on corporate bonds. So there will be less to lend out and more borrowers for lower interest rates. This can push up the basic interest rate to a point where it is condusive for savers to come back again to Banks with their savings. When the interest rate moves up there will be lesser borrowers for large savers which will again push down the interest rate and this cycle keeps repeating.

Answer 4

Reduction in bank rate lessens the intention to save, encourages spending on durable commodities,promotes bank loans for real estate and gold,encourages share market investment even with credit,credit worthiness of industries is boosted and so on.

Answer 5

reduction in bank rates, does not means change in the credit or policy, it is the rates of the inter bank/rates of interest.
It is nothing to deal with the customers credit.

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