An increase in the Bank Rate generally indicates that the

The correct answer is D. Bank Rate is the rate at which the central bank lends to commercial banks. When the central bank raises it, borrowing becomes costlier for banks, which then pass the higher cost on to businesses and households. That signals a tight, or contractionary, monetary stance aimed at controlling inflation and credit growth.

• A is wrong. A higher Bank Rate pushes market interest rates up, not down.
• B is wrong. Raising the rate makes refinance dearer but does not stop the central bank from lending to banks. The facility remains open.
• C is wrong. An expansionary policy means cheaper money, so the Bank Rate would be cut, not raised.

The core concept is the transmission of monetary policy: a change in the policy rate moves deposit and lending rates across the economy. This links directly to the RBI's inflation-targeting framework under the amended RBI Act (2016) and the Monetary Policy Committee, a frequent Mains theme. Note that the RBI now uses the repo rate as its main policy signal. The Bank Rate is kept at the Marginal Standing Facility rate (repo plus 25 bps), so it is now mostly a reference rate. The 2013 logic still holds.

Trap: aspirants read "rate increase" as "lending stops" or "market rates fall" and pick A or B. Always ask which way the cost of money moves.