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4 September, 08:47

What situations would result in lowering of interest rates by the banking authority of a​ country?

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  1. 4 September, 10:49
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    Increase in Money Supply : By - Increase in LRR, Increase in Marginal Requirement, Purchase of securities in OMO

    Explanation:

    Money Supply & Interest Rate are inversely related. Higher money supply is cheaper, i. e cost of money = interest rate is low. Lower money supply means money is expensive, i. e cost of money = interest rate is high.

    Money Supply can be increased by increased due to:

    Increase in Legal Reserve Requirement : Higher reserve requirements reduce loanable funds & credit, money supply for public Increase in Marginal Requirement : Higher difference between loan & collateral value reduces credit creation & money supply Purchase of securities in OMO: Sale of securities in Open Market Operations reduces money supply in hands of people.
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