My reply to a comment by one reader on my comment regarding Cash Reserve Ratio with relation to inflation control published on Economic Times.com dated 16/12/2013 at 9:30 pm.
"You must be aware that CRR is the reserve required to be kept by banks with RBI. So when the CRR is increased, banks require to keep more money with RBI. Thereby banks are left with lesser funds to lend to borrowers. When borrowers get less money from banks, they do not have enough money to spend. Ultimately, demand will be less as compared to same quantity of supplies. So inflation gets decreased. I think you must be clear now."
"You must be aware that CRR is the reserve required to be kept by banks with RBI. So when the CRR is increased, banks require to keep more money with RBI. Thereby banks are left with lesser funds to lend to borrowers. When borrowers get less money from banks, they do not have enough money to spend. Ultimately, demand will be less as compared to same quantity of supplies. So inflation gets decreased. I think you must be clear now."
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