When does the Central Bank increases the minimum statutory cash reserve ratio of the Commercial Banks?begin{enumerate}item When the economy is in deflationary conditionitem When the economy is experiencing inflationitem When the Central Bank aims credit contraction.end{enumerate}

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

When does the Central Bank increases the minimum statutory cash reserve ratio of the Commercial Banks?

A	1 and 3
B	2 and 3
C	Only 2
D	All the above

Explanation:

Detailed explanation-1: -RBI increases the cash reserve ratio during periods of high inflation to restrict the banks’ money available for loans. It helps remove the excess cash from the economy and credit market.

Detailed explanation-2: -So, When CRR is increased, it decreases money supply, Increases interest rates on home loans, car loans etc. and in inter-bank market, Increases demand for money and decreases inflation.

Detailed explanation-3: -CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend.

Detailed explanation-4: -A high value of CRR forces banks to keep more reserves and hence helps increase the value of reserve deposit ratio, thus diminishing the value of the money multiplier and money supply or liquidity in the economy.

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