Cash Reserve Ratio (CRR)

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The main liability of banks is deposit. The cash reserve ratio determines the portion of customer deposits that commercial banks must keep as a reserve with the central bank. Every scheduled bank has to maintain CRR in the form of cash with Bangladesh Bank. In other word, banks deposit this amount with Bangladesh Bank (BB) instead of keeping this money with them. Usually, banks don’t earn any interest on that money.

The amount of CRR shall not be less than such portion of banks total demand liabilities and time liabilities as prescribed by BB from time to time. Generally, the required CRR in Bangladesh is 4% to 6.50% on bi-weekly average basis.

The CRR is directly calculated by Bangladesh Bank, and it is in the jurisdiction of the BB to keep it high or low depending upon the cash flow in the economy. Using the reserve ratio, the central bank can control the amount of liquid cash that circulates in the economy. Lowers CRR allows banks to have surplus money that they can lend to invest. On the other hand, a higher CRR means banks have a lesser amount of money at their disposal to distribute. Thus a higher CRR implies that the banks must hold higher reserves and thus tighten the flow of cash in the economy and vice versa.

Generally, banks are allowed to maintain cash reserve with local currency (Taka) only. The day end balances of the Taka current accounts maintained with different offices of BB will be aggregated to compute the maintained cash reserve of the day.

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