What is CRR? How its affects our Economy, industry, banks, common man, prices
What is inflation? How to increase its dwindling measured?
The inflation is the price hikes of important products. For Example, wheat prices in the last shopping if you bring in 10 kg of wheat RS 100 and now you bought at the rate of Rs 110 so ten rupee increasing of amount is Inflation its we can say 10% increased. So on that cases impact to other products, but question is how to measures the Inflation by government, Consumer Price Index (CPI) Cost of Living Index (CPI) Producer Price Index (PPI) etc are the measure tools for Inflation reports creating. There are many causes of inflation growing, harvest be alright, government uncontrolled prices, some mistakes in government policies, import-export policy, demand and supply of goods and greater availability of money (Excess Liquidity).
But all other things come to understand what happened to the availability of the currency?
Now as you know the currency in the market depends on the demand and supply.
Now that the financial institutions (such as Bank) have their work have take deposit and pay to them who have needs the money and gain to profit. For example, if a Bank has a lot of deposit it would be that this deposit by credit in the market and gained more and more interest in the market as more money will come now and its opposite after come the money into the open market than inflation will be increased.
Though these are not necessarily always, for example, if a flat you get 20 million, And then you get affordable 85% loan is interest rates you would like to have, maybe, next year to plan, but would prefer to take this year. Banks interest rates also depend on liquidity of Exchange and of course another important thing is that this includes CRR.
Now question is what is Cash Reserve Ratio (CRR)? Definition of CRR (Cash Reserve Ratio)
Cash reserve Ratio or CRR is that amount of funds banks have to keep in RBI or Such as Top Central Government Bank for Foreign Counties. If Reserve Bank of India (RB) have 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.
Now that all the banks in India, he is working under the Reserve Bank. Reserve Bank giving these bank undeclared guarantees. How much guarantee giving by Reserve Banks, its depends on how much money or gold deposits into the RBI.
Usually each bank according to the RBI's CRR policy has the money to keep with the Reserve Bank. Reserve Bank's work is to ensure that the markets in the currency (rupee) per requirement of liquidity (availability) are, it more or less to the percentage of the Reserve Bank in its CRR movement keeps growing
This means if the Reserve Bank shall change its CRR by half in percent, than all banks have keep deposited money into the RBI. The result will be bank have less funds, less funds means, they are then forced to Intensify their lending interest rates will have to pay, reduction in the demand for credit. Interest Rate increasing people will borrow fewer loans. Then products price will fall in demand will reduce borrowings. Reduction in inflation will fall in demand then. So it looks visually a lengthy process, but is often effective. This way it is a measure for the government to reduce inflation.
How to affected CRR Share market and Common man?
If you are producer than understands product demands will be falls and you will be loss more productions of products.
If you do something in consumer prices is defined as a lack of things to come. You are in advantages.
If you have a taken bank borrowing with variable interest rates than consider increasing the interest burden is on you. If you have taken with permanent loan (Fixed) rates have been perfect then go to sleep and enjoy it’s don’t impact on you. To avoid this situation, the bank is trying to force the variable interest rate loans.
If you have invested in stock market investor and you go to be vigilant, currency liquidity problem in the market (Liquidity Crunch). In coming days market activity may have some ups and downs. If you have invested in securities (Debt Instruments) etc you will get more interest rates and you will enjoy. Some industries may have the opposite effect, resulting in their stocks also may decline.
This way each person directly or indirectly influenced the course of the CRR. We Hope you understand about CRR and Inflations and impact effects of these into Share market, economy, industry or common man.