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If the cash reserve ratio is lowered by the RBI, its impact on credit creation will be

  1. A
    to increase it.
  2. B
    to decrease it.
  3. C
    no impact
  4. D
    None of the above

Solution & Step-by-step Explanation

The Cash Reserve Ratio (CRR) specifies the mandatory fraction of liquid cash deposits that commercial banks must park with the RBI. Lowering the CRR frees up a larger proportion of bank deposits, expanding the liquidity pool available to commercial institutions and directly increasing their capacity for credit creation.

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If the cash reserve ratio is lowered by the RBI, its impact on credit creation will be
A
to increase it.
B
to decrease it.
C
no impact
D
None of the above

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Monetary PolicyBanking SectorReserve Bank of India

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