BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raise in CRR and lower SLR
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Lower CRR and raise SLR
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Raise both CRR and SLR
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none of these
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Detailed explanation-1: -During high levels of inflation, attempts are made to reduce the flow of money in the economy. For this, RBI increases the CRR, lowering the loanable funds available with the banks. This, in turn, slows down investment and reduces the supply of money in the economy.
Detailed explanation-2: -In case the demand and consequent inflation are high, the SLR is increased to bring down the money availability and demand, consequently inflation. SLR also helps banks to meet their deposit redemption requests by maintaining a certain portion of time and demand liabilities in liquid form.
Detailed explanation-3: -Cash Reserve Ratio and inflation: CRR is part of RBI’s monetary policy which helps eliminate liquidity risk and regulate money supply in the economy. In the case of inflation, RBI increases the CRR due to which interest rate increases, and the capacity of banks to lend also decreases.
Detailed explanation-4: -In case of high inflation, RBI increases the CRR which decreases the amount of cash available to the banks for lending purposes. This reduces the money supply in the economy thereby decreasing the rate of inflation in the economy. Was this answer helpful?