CRR means Cash Reserve Ratio. Bangladesh Bank are needed to carry a precise proportion of their deposits within the sort of money. However, really Banks don`t hold these as money with themselves, however deposit such case with Bangladesh Bank (BB) / currency chests, that is taken into account as akin to holding money with themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the BB and is known as the CRR or Cash Reserve Ratio. Thus, When a bank`s deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with BB and Bank will be ready to use solely Rs ninety one for investments and disposal / credit purpose.
Therefore, higher the ratio (i.e.CRR), the lower is that the quantity that banks are ready to use for disposal and investment. This power of run to cut back the available quantity by increasing the CRR, makes it associate instrument within the hands of a financial organization through that it will management the amount that banks lend. Thus, it is a tool used by BB to control liquidity in the banking system.
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