CRR stands for Cash Reserve Ratio.
The **Cash Reserve Ratio (CRR)** is the percentage of a commercial bank's total deposits that it must keep as reserves in the form of cash with the **Reserve Bank of India (RBI)**. This ratio is a crucial tool used by the RBI to regulate the money supply in the economy and control inflation. The CRR directly impacts the liquidity available to commercial banks, influencing their ability to lend and thus affecting economic growth.
When the RBI wants to reduce inflation or control excessive lending, it can increase the CRR, thereby limiting the amount of money that banks can lend to borrowers. Conversely, lowering the CRR can stimulate economic growth by increasing the money supply and enabling banks to extend more loans.
The CRR also helps ensure that banks maintain sufficient liquidity to meet withdrawal demands and remain financially stable. It serves as a safeguard for the banking system, promoting overall economic stability.
In summary, the Cash Reserve Ratio is an essential monetary policy tool that helps the RBI maintain balance in the economy, control inflation, and ensure financial stability in the banking sector.