CRR stands for Cash Reserve Ratio. It is the percentage of a bank’s total deposits that it is required to keep in the form of cash reserves with the central bank of the country. CRR is one of the methods used by the central bank to regulate the money supply in the economy.
When a bank deposits money with the central bank as its reserve, it is not available for lending or investment purposes. Therefore, increasing the CRR reduces the amount of funds available with banks for lending and investment, leading to a decrease in the money supply in the economy. Conversely, decreasing the CRR increases the amount of funds available with banks for lending and investment, leading to an increase in the money supply.
CRR is a tool used by central banks to control inflation and maintain financial stability in the economy. By adjusting the CRR, central banks can influence the lending and investment activities of banks and regulate the flow of credit in the economy. The CRR also helps to ensure that banks maintain a certain level of liquidity to meet their depositors’ demand for cash withdrawals.
