Question

what is slr and how it affect economy of the country

Answer 1

SLR (Statutory Liquidity Ratio ) is the money a commercial bank needs to preserve in the form of cash or gold or bonds before providing credit to their own customers. SLR rate is decided by the RBI to control the expansion of bank credit. If RBI wants to control the inflation, it reduces the supply of money by increasing the SLR. So banks will be forced to pay a higher rate for money borrowed from RBI.Hence banks will increase the interest rates for their customers. Lower SLR means bank can give more money as loan-- Lower interest rates---Cheap Loan--more people will take loan to start business or building houses or buying vehicles--this will result in boosting Economy. However, it can also lead to inflation, if people have more cash in their hands than the items available for purchase in the market. Higher SLR---Bank can give less money as Loan-- Higher interest rate-- So it will become expensive to start a new business or to buy a new house /car/bike-------This can curb Inflation but may lead to slow down in Economy because people will wait for the interest rate to go down, before taking loan. So SLR and Economic Growth of a country are related to each other. Hope this will help a lot to understand in easy way. Please mark the answer brainiest.