Cash Reserve Ratio (CRR)
Cash reserve ratio (CRR) is the amount of money that the scheduled banks will have to have in deposit with the central bank of the country at all times. If the central bank increases the CRR, then the scheduled banks will have a lesser amount available in their disposal. CRR is the amount that the bank has, which cannot be invested anywhere or given as loans to the borrowers. (Cleartax).
CRR specifications give greater control to the central bank over money supply. Commercial banks have to hold only some specified part of the total deposits as reserves. This is called fractional reserve banking. (The Economic Times).
The Cash Reserve Ratio (CRR) is a major component of the RBI’s monetary policy. The central bank uses this percentage to regulate the cash flow, money supply, inflation level, and liquidity in the economy. When the CRR increases, the liquidity reduces with the banks, and vice versa. During high inflation, the RBI tries to reduce cash flow in the economy by increasing the current Cash Reserve Ratio. Consequently, it reduces the amount of loans banks can lend to borrowers. Investments slow down in the economy, and finally, the cash flow minimizes, negatively impacting the country's economic growth. However, it also helps to bring down the inflation levels.(HeroFinCorp.)
Cleartax (2023, Nov 22). Cash Reserve Ratio (CRR).Retrieved from: https://cleartax.in/glossary/cash-reserve-ratio-crr/
The Economic Times. What is 'Cash Reserve Ratio. Retrieved from: https://economictimes.indiatimes.com/definition/cash-reserve-ratio
Hero FinCorp Team (2023, Sep 07). Cash Reserve Ratio (CRR): Meaning, Advantages, and Its Rate. HeroFinCorp. Retrieved from: https://www.herofincorp.com/blog/cash-reserve-ration