Many times, the economy has to suffer from situations like inflation and deflation and to solve those problems our central authority of issue take some steps to control the credit creation in the economy.
One of those way is :- "Change in Reserve Requirement"
It basically includes 2 things, (1) Cash Reserve Ratio
(2) Statutory Liquidity Ratio
!- Cash Reserve Ratio
It is the ratio that the commercial banks have to maintain with RBI as a % of their demand deposits.
Now when there is inflation then CRR inc. due to which comm banks will left with lesser money and credit creation will be controlled.
Similarly when there is deflatino then CRR dec which increases the amount available with comm banks to lend and hence credit creation increases.
The ditto same process takes place in case of SLR which is the ratio in which the comm banks have to maintain cash or any other liquid assets along with them!
