How does increasing the CRR, SLR and PLR help reduce inflation?
This was selected as Best Answer Helo Anand, Basically CRR (Cash Reserve Requirement), SLR (Statuary Liquid Requirement) is Central Bank’s monetary tools used at an extreme situations when there is surplus liquidity, it reduces the lending ability of the banking system. When the inflation is high, Central Banks hikes the Interest rates and often conduct (OMO’s) Open Market Operations to drain excess liquidity. Excessive hike of interest rates could be damaging for the economy, since the borrowing cost goes up resulting higher cost of doing business. Therefore, it is the job of the Central Bank to maintain a balance between growth and inflation. In an economy such as China and India where the growth is tremendous, there is high risk of rising inflation, it also increases the risk of bank defaults or NPL’s ( Non Performing Loans), due to liberal and riskier lending policy of liquid banks. China and India, both the countries, despite number of rate hikes have raised their Reserve Requirem
