What is CRR: How Does it Impact The Economy?

What is the CRR rate, and if the RBI increases or decreases it, what is the benefit or loss from it? This question must have come to your mind many times.

Actually, even a small fluctuation in the CRR decided by the Reserve Bank affects your savings and investments.

Know How:

CRR is a rate. Which are imposed by the Reserve Bank on other public sector banks. These come under the monetary policy of the Reserve Bank. To understand it easily, it becomes more important for us to understand: what is its full form?

CRRC: C means cash (cash), R means reserve, and R means rate (rate) to be applied in the final.
To understand CRR, just one word needs to be taken care of.

Reserve means, in Hindi, pre-decided or previously saved. Similarly, it can be said that the cash reserve rate means saving some amount at an already fixed rate.

So in the same way, we can understand that this is a rate that is imposed by the Reserve Bank on deposits in nationalized banks, at which rate banks keep a fixed portion of their amount as reserves at the RBI.

This Effect on Your Wealth

If the RBI increases the CRR rate, then the banks will have to keep more reserves with the RBI than before, due to which the cash with the banks will be less than before.

This is the reason that when the cash is low, the bank will not have money to lend. The interest you get on your deposit may also decrease. And the interest rates on the loan can also be increased.

What Does It Do to You?

If the CRSR rate fluctuates, it first affects the cash available in the market and then affects the society.

In fact, if the Reserve Bank increases the CRCR rate, then the banks will have to deposit more of the cash available with them with the Reserve Bank than before.

Due to this, the cash in the banks will reduce, and people will have to cut back on giving loans.