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In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?
- a)During periods of inflation
- b)To increase liquidity in the market
- c)When the economy is in recession
- d)To encourage more lending in a deflationary environment
Correct answer is option 'D'. Can you explain this answer?
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In what situation might the Reserve Bank of India lower the Statutory ...
Understanding SLR
The Statutory Liquidity Ratio (SLR) is a regulatory requirement for banks in India to maintain a certain percentage of their net demand and time liabilities in the form of liquid cash, gold, or other securities. Lowering the SLR can stimulate economic activity under specific circumstances.
Reasons for Lowering SLR
- To Encourage More Lending
In a deflationary environment, economic activity slows down, leading to reduced consumer spending and business investments. By lowering the SLR, the Reserve Bank of India (RBI) increases the funds available for banks to lend. This is crucial in a deflationary scenario, where the goal is to spur economic growth.
- Increasing Liquidity in the Market
Lowering the SLR directly injects liquidity into the banking system. With more funds available, banks can extend more loans to businesses and consumers, fostering investment and spending.
Impacts of Lowering SLR
- Stimulating Economic Growth
When banks have more liquidity, they can provide loans at lower interest rates, encouraging borrowing. This can lead to increased spending by businesses and consumers, thus stimulating economic growth.
- Combating Recessionary Pressures
In times of recession, lowering the SLR helps combat the negative effects of reduced demand. By making it easier for banks to lend, the RBI aims to kickstart economic activity and mitigate the impacts of a downturn.
Conclusion
In summary, lowering the SLR is a strategic move by the RBI to enhance liquidity and encourage lending, particularly in a deflationary environment, thereby helping to stabilize and stimulate the economy.
The Statutory Liquidity Ratio (SLR) is a regulatory requirement for banks in India to maintain a certain percentage of their net demand and time liabilities in the form of liquid cash, gold, or other securities. Lowering the SLR can stimulate economic activity under specific circumstances.
Reasons for Lowering SLR
- To Encourage More Lending
In a deflationary environment, economic activity slows down, leading to reduced consumer spending and business investments. By lowering the SLR, the Reserve Bank of India (RBI) increases the funds available for banks to lend. This is crucial in a deflationary scenario, where the goal is to spur economic growth.
- Increasing Liquidity in the Market
Lowering the SLR directly injects liquidity into the banking system. With more funds available, banks can extend more loans to businesses and consumers, fostering investment and spending.
Impacts of Lowering SLR
- Stimulating Economic Growth
When banks have more liquidity, they can provide loans at lower interest rates, encouraging borrowing. This can lead to increased spending by businesses and consumers, thus stimulating economic growth.
- Combating Recessionary Pressures
In times of recession, lowering the SLR helps combat the negative effects of reduced demand. By making it easier for banks to lend, the RBI aims to kickstart economic activity and mitigate the impacts of a downturn.
Conclusion
In summary, lowering the SLR is a strategic move by the RBI to enhance liquidity and encourage lending, particularly in a deflationary environment, thereby helping to stabilize and stimulate the economy.
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In what situation might the Reserve Bank of India lower the Statutory ...
Lowering the SLR during deflation encourages more lending by increasing the liquidity available to banks, stimulating economic activity.
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In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? for Class 10 2025 is part of Class 10 preparation. The Question and answers have been prepared according to the Class 10 exam syllabus. Information about In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for Class 10 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer?.
In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? for Class 10 2025 is part of Class 10 preparation. The Question and answers have been prepared according to the Class 10 exam syllabus. Information about In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for Class 10 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer?.
Solutions for In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for Class 10.
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In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer?, a detailed solution for In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? has been provided alongside types of In what situation might the Reserve Bank of India lower the Statutory Liquidity Ratio (SLR)?a) During periods of inflationb) To increase liquidity in the marketc) When the economy is in recessiond) To encourage more lending in a deflationary environmentCorrect answer is option 'D'. Can you explain this answer? theory, EduRev gives you an
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