Economic Terms.

Whether you are a student of Economics or Management,Whether you are a working professional or a layman.Reserves play a important role in your life.Reserve Ratios or Required Reserve Ratio or Cash Reserve Ratio effects the market and the life of a common man directly.

Now you may be thinking what exactly is it??????

So let us see it in details.

The Reserve Requirement (or Required Reserve Ratio or Cash Reserve Ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. It would normally be in the form of fiat currency stored in a bank vault (vault cash), or with a central bank.

CRR:-

CRR Rate in India

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.

Relation between Inflation and Bank interest Rates

Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.

Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also

What is Inflation?

Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are less Goods and more buyers, this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

Deflation

Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period...

What is a Repo Rate?

Whenever the banks have any shortage of funds they can borrow it from RBI. Repo rate is the rate at which our banks borrow rupees from RBI. A reduction in the Repo rate will help banks to get money at a cheaper rate. When the Repo rate increases borrowing from RBI becomes more expensive.