The ”reserve requirement ratio” (RRR) or cash reserve ratio (CRR) is the percentage of customer deposits and other liquid assets that commercial banks must store, within it’s own institution or with the central bank.
The RRR is set by the central bank to ensure that commercial banks have enough assets to pay its depositors in case of unusually high withdrawals.
Some central banks use RRRs for monetary policy. Decreasing the RRR tends to stimulate economic activity as banks have more assets to loan out to borrowers.
Alternatively, increasing the RRR decreases the money available to potential borrowers, which could lead to a decline in economic activity and higher purchasing power of the money circulating in markets.« Back to Glossary Index