When the Reserve Bank of India announces an increase of the Cash Reserve Rate, what does it mean?
✓ Correct answer: a) The commercial banks will have less money to lend
ExplanationThe CRR is the percentage of a bank’s total deposits that it must keep as reserves with the RBI in the form of cash.This is a monetary policy tool used by the RBI to control liquid- ity in the economy.This amount cannot be used for lending or investment by banks.When the RBI increases the CRR, banks are required to keep a higher proportion of their deposits as reserves.This reduces the amount of money available with banks for lending to businesses and individuals.Option (b) is incorrect : RBI does not lend money to the pub- lic or businesses.It only regulates the money supply through tools like CRR.Option (c) is incorrect : The Union Government’s borrowing and lending activities are separate from the RBI’s monetary policy tools like CRR.Option (d) is incorrect : An increase in CRR reduces (not in- creases) the amount of money available for lending by com- mercial banks.199
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