What is Cash Reserve Ratio?
Minimum amount of reserves required by the bank to be maintained in comparison with the bank's total deposits is Cash Reserve Ratio.
CRR should be liquid assets which is cash.
CRR was increased by RBI today at 4.5% from 4.00% earlier.
So, a bank will be required to keep 4.50% of its total deposits in liquid cash, so more cash will be absorbed by the bank's from the economy to maintain it's CRR.
As, inflation is high, which means more cash is floating in the economy currently, which leads to increase in prices of products in the market.
To decrease the prices, less cash should be floating in the economy, to do the same, RBI wants to absorb money flow from the economy to control the inflation.
Our team tried to explain the CRR in simplest way possible.
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