ICSE Class 10 Answered
State & limitations of bank rate policy?
Asked by bhupa.sri | 11 Dec, 2018, 07:58: PM
Expert Answer
Bank rate is the rate at which the RBI lends money to commercial banks to meet their long term needs.
Limitations of Banks Rate:
- The psychological impact exists on change in the bank rate policy. During inflationary situation, the business group’s demand for credit will be interest inelastic and this policy will have no effect. On the other hand, during the deflationary situation, the business groups will not treat low interest as incentive. Here they are more influenced by business expectations.
- In developing nations, the money market and capital market are not so integrated and only a non-monetised sector exists. So a change in bank rate have no influence on market rate of interest.
- The bank rate policy is not applicable if the people save money for any precautionary motive. So here the actual income of the people determine their deposits.
Answered by Tharageswari S | 12 Dec, 2018, 09:39: AM
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