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What is the purpose of the Cash Reserve Ratio (CRR) set by the RBI?
  • a)
    To maintain price stability
  • b)
    To control inflation
  • c)
    To regulate the expansion of bank credit
  • d)
    To encourage economic growth
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
What is the purpose of the Cash Reserve Ratio (CRR) set by the RBI?a)T...
The Cash Reserve Ratio (CRR) is set by the RBI to regulate the expansion of bank credit. Commercial banks are required to maintain a certain proportion of their deposits in the form of cash with the RBI. By increasing or decreasing the CRR, the RBI can control the amount of money available for lending by commercial banks. When the CRR is increased, banks have to keep a higher proportion of their deposits with the RBI, reducing the amount of money available for lending and restricting credit expansion. On the other hand, a decrease in the CRR increases the availability of money for lending and stimulates credit growth.
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