A bank rate is the interest rate at which a nation's central bank lends money to domestic banks. Managing the bank rate is a method by which central banks affect economic activity.

When the Reserve Bank of India (RBI) lowers the Bank Rate, it becomes cheaper for commercial banks to borrow from the RBI. This incentivizes commercial banks to borrow more funds from the RBI, leading to an increase in the liquidity available to them. With more liquidity available, commercial banks are likely to lend more to businesses and individuals, thereby increasing the overall liquidity in the market.