Cash Reserve Ratio

The Cash Reserve Ratio (“CRR”) refers to the liquid cash that banks are required to maintain with the central bank as a certain percentage of their demand and time liabilities. These reserves are designed to satisfy withdrawal demands and would normally be in the form of fiat currency stored in a bank vault (vault cash) or with a central bank. The reserve ratio is sometimes used as a tool in monetary policy, influencing the country’s economy, borrowing, and interest rates. It is expressed as percentage and varies from time to time. It is mandated by the central bank of the country. It is an effective tool to monitor credit expansion by restricting the amount of money supplied in the economy.

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