Consider that in an economy Bank rate is decreased . Arrange the following statements relating to change in bank rate in the sequencing order :

(A) Loans taken by commercial bank become cheaper

(B) Increases money supply

(C) Bank rate is decreased by RBI

(D) Reserves held by commercial banks increases

Choose the correct answer from the options given below :

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

The correct answer is option (2) : (C), (A), (D), (B)

When the Reserve Bank of India (RBI) decreases the bank rate, the following sequence of events occurs:

1. (C) Bank rate is decreased by RBI – The RBI reduces the rate at which it lends to commercial banks.
2. (A) Loans taken by commercial banks become cheaper – Since the borrowing cost for commercial banks decreases, they can borrow more funds at lower rates.
3. (D) Reserves held by commercial banks increase – With cheaper loans from the RBI, banks now have more reserves to lend.
4. (B) Increases money supply – As commercial banks lend more, the money supply in the economy increases, leading to higher liquidity.