A decrease in Cash Reserve Ratio (CRR) can lead to which among the following ?
1. Increase in cash availability of the banks
2. Increase in repo rate
3. Decrease in SLR
Select the correct answer using the codes given below.
  • a)
    1 only
  • b)
    1 and 2 only
  • c)
    1 and 3 only
  • d)
    1,2 and 3
Correct answer is option 'A'. Can you explain this answer?
Related Test: Test: Economics - 1

UPSC Question

2 Answers
HIMANSHI ARORA answered Jul 24, 2019
Answer & Explanation: (a) 1 only.
Under CRR a certain percentage of the total bank deposits has to be kept in the current account with RBI which means banks do not have access to that much amount for any economic activity or commercial activity. Banks can’t lend the money to corporates or individual borrowers, banks can’t use that money for investment purposes.In short, CRR is the amount in cash which banks have to keep with RBI. Any decrease in CRR will therefore increase cash availability with the banks. Repo rate and SLR would not be affected by changes in CRR. They r separate mechanisms, the rate of which is decided by RBI.

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