Cash reserve ratio(CRR)

What is CRR?

The cash reserve ratio is a part of monetary policy that is  used to control the money supply in the economy; this regulation is implemented in every country by their central bank.

The cash reserve ratio is the minimum fraction of the total deposits of customers that a commercial bank holds.

Who controls CRR?

The cash reserve ratio is controlled by the reserve bank of india(RBI), india's central bank and regulatory body, is responsible for the regulation of the indian banking system.

Impact of “CRR” on the stock market

Liquidity impact

When crr increased by the central bank, then the commercial bank start holding more cash with the central bank. This reduce the amount of money available for lending and decreases the liquidity in the economy, and because of it, borrowing funds become expensive. As a result, companies may experience lower earnings, leading to a decrease in their stock prices.

Sectoral impact

Different sectors of the economy are impacted differently by changes in crr.

Interest rate impact

Changes in crr can influence overall interest rates in the economy. Higher crr can lead to higher interest rates. Higher interest rates can make borrowing more expensive for companies, potentially leading to lower investment and thus affecting stock prices negatively.

CRR change and its impact  change in crr  impact on market 

1.            8/10/1992 – 15          crr was not changed, but the market was on a down trend, so it shows a negative impact  

2.            17/04/1993 – 14.5     crr was changed with 0.5 from 15 to 14.5. After a long time, it showed a positive impact, and the market become bullish

3.            11/06/1994 – 14.5     crr was not changed so no huge impact

4.            09/12/1995 – 14        crr changed with 0.5 from 14.5 to 14, so it shows a positive impact

5.            11/05/1996 – 13        crr changed with 1 from 14 to 13, so it shows a positive impact   

6.            04/01/1997 – 10.5     crr changed with 2.5 from 13 to 10.5, so it shows a positive impact

7.            17/01/1998 – 10.5     crr was not changed but  it shows positive impact 

8.            06/11/1999 – 9.5       crr changed with 1 from 10.5 to 9.5, so it shows a positive impact

9.            8/4/2000  - 8.5           crr changed 0.5 from 9 to 8.5, so the market shows a positive impact

10.          24/02/2001 – 8.25     crr changed 0.25 from 8.5 to 8.25 so market shows positive impact