Q. 245.0( 1 Vote )

Explain the role of the cash reserve ratio in controlling credit creation.

Answer :

The role of cash reserve ratio in controlling credit creation is mentioned below:

● Cash Reserve Ratio or CRR is the percentage of deposits which commercial banks keep with the central banks, in accordance with the law.


● If the CRR is increased, the banks have to keep a higher share of deposits in the central banks.


● This will reduce the funds kept with them to give out as loans.


● Thus, the level of credit creation reduces.


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