Question

Q. When the Reserve Bank of India announces an increase of the Statutory Liquidity Ratio (SLR), what does it mean?

• A.
  The Commercial banks will have less ability to inject money into the economy.
• B.
  The Reserve Bank of India will have less ability to inject money into the economy.
• C.
  The Union Government will have less ability to inject money into the economy.
• D.
  Commercial banks will have more ability to inject money into the economy.

Answer 1

The correct option is A

The Commercial banks will have less ability to inject money into the economy.

Explanation:

Statutory Liquidity Ratio (SLR) is a quantitative monetary policy tool used by the Reserve Bank of India (RBI) for controlling inflation in the economy. The ratio refers to the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. So, if SLR increases then commercial banks will face liquidity crunch and will have less ability to inject money into the economy.