Difficulty: Medium
Correct Answer: if only conclusion II follows
Explanation:
Introduction / Context:A policy rate cut is typically a signal toward easier financial conditions. We must decide whether a system-wide bias to soft rates is implied, and whether banks will “likely” cut lending/deposit rates.
Given Data / Assumptions:
Concept / Approach:Conclusion II is an interpretive restatement of what such a cut signals (a tilt toward a soft-rate regime). Conclusion I predicts subsequent pricing by banks; while common, it is not logically guaranteed because pass-through can be sticky or delayed.
Step-by-Step Solution:
Conclusion I: “Banks are likely to cut lending and deposit rates.” This involves behavioural response and timing; not entailed.Conclusion II: “The move indicates a strong bias toward a soft interest-rate regime.” This follows from the central bank’s rate-easing signal.Verification / Alternative check:If banks choose not to cut immediately due to liquidity/funding mix, II still holds while I may fail, showing only II is necessary.
Why Other Options Are Wrong:“Either” and “neither” mischaracterise the policy signal; selecting I alone overstates certainty of pass-through.
Common Pitfalls:Treating market transmission as automatic.
Final Answer:if only conclusion II follows
Discussion & Comments