Question

Which statement about CRR and SLR is most appropriate in the context of credit control?

Options

• Higher CRR/SLR increases banks’ lending capacity

• Lower CRR/SLR forces banks to keep more idle cash

• Higher CRR/SLR reduces banks’ ability to lend

• Changes in CRR/SLR do not affect credit creation

Answer 1

Higher CRR/SLR reduces banks’ ability to lend

Explanation: 

When CRR or SLR is increased, a larger part of deposits is locked as reserves or liquid assets, so banks have less funds to lend, reducing credit in the economy.