Consider the following steps taken by the Reserve Bank of India with respect to money supply and arrange them in the appropriate sequence.

(A) Increase in lending rates by commercial banks.
(B) Contraction in credit.
(C) Increase in bank rates by the Reserve bank of India.
(D) Increase in cost of borrowings by commercial banks.

Choose the correct answer from the options given below:

(C), (D), (A), (B)

The correct answer is Option (3) → (C), (D), (A), (B)

• (C) Increase in bank rates by the Reserve Bank of India: RBI raises the bank rate, which is the rate at which it lends to commercial banks. This is the first step initiated by RBI to reduce money supply.

• (D) Increase in cost of borrowings by commercial banks: As a result of the increase in bank rate, borrowing becomes costlier for commercial banks.

• (A) Increase in lending rates by commercial banks: To pass on this burden, commercial banks increase their lending rates, making loans costlier for consumers and businesses.

• (B) Contraction in credit: Due to higher lending rates, people borrow less, leading to a reduction in credit creation, which reduces money supply in the economy.