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Consider the following statements about Cash Reserve Ratio (CRR): 
1. It can be increased to curb deflation or low inflation. 
2. RBI pays interest on CRR to the scheduled banks. 
Which of the statements given above is/are correct?
  • a)
    1 only
  • b)
    2 only
  • c)
    Both 1 and 2
  • d)
    Neither 1 nor 2
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
Consider the following statements aboutCash Reserve Ratio (CRR):1. It ...
CRR is decreased to curb deflation. Decreasing CRR will increase money supply and push the economy towards inflationary tendency.No interest is paid on CRR
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Most Upvoted Answer
Consider the following statements aboutCash Reserve Ratio (CRR):1. It ...
Explanation:

Statement 1: Cash Reserve Ratio (CRR) is the portion of the total deposits that banks are required to keep with the Reserve Bank of India (RBI) in the form of cash. The purpose of CRR is to maintain liquidity in the banking system and control inflation. When the economy is facing deflation or low inflation, the central bank may reduce the CRR to inject more liquidity into the system, encouraging banks to lend more and stimulate economic activity. Therefore, statement 1 is incorrect.

Statement 2: RBI does not pay any interest on the CRR maintained by banks. Banks are required to maintain a certain percentage of their deposits as CRR with the RBI, and they do not earn any interest on this amount. Therefore, statement 2 is incorrect.

Conclusion: Both statements 1 and 2 are incorrect.
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Community Answer
Consider the following statements aboutCash Reserve Ratio (CRR):1. It ...
D is right option. CRR does not decrease inflation if it increased. and RBI does not give interest on it.
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Consider the following statements aboutCash Reserve Ratio (CRR):1. It can be increased to curb deflation or lowinflation.2. RBI pays interest on CRR to the scheduledbanks.Which of the statements given above is/arecorrect?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'D'. Can you explain this answer?
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