On 21st December, 2022, the Reserve Bank of India has declared its monetary policy and as per the source https://rbidocs.rbi.org.in the extract of the the Minutes of the Monetary Policy Committee meeting has been given below.

December 5-07,2022 (Under Section 45ZL of the Reserve Bank of India Act, 1934) The fortieth meeting of the Monetary Policy committee, constituted under Section 45ZB of Reserve Bank of India Act-1934, was held during December 5-7, 2022. The Committee decided to increase the lending rate by 35 basis points to 6.25 percent with immediate effects. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

On this basis of this article answer the question.

Under this measure of Monetary policy the commercial banks are required to maintain a certain percentage of deposits with themselves as reserves. Identify the name of the monetary tool.

Cash Reserve Ratio

The correct answer is option (3) : Cash Reserve Ratio

Here’s a brief description of each option to clarify:

1. Open Market Operation (OMO): This refers to the buying and selling of government securities by the central bank to regulate the money supply in the economy.

2. Statutory Liquidity Ratio (SLR): This mandates banks to maintain a certain proportion of their net demand and time liabilities (NDTL) in the form of liquid assets such as cash, gold, or government-approved securities.

3. Cash Reserve Ratio (CRR): This mandates banks to maintain a certain percentage of their net demand and time liabilities (NDTL) as cash reserves with the central bank. It directly influences the liquidity in the banking system.

4. Margin Requirement: This is a regulatory requirement imposed on investors to deposit a certain percentage of the total value of the investment to trade in financial markets, particularly applicable to securities trading and not directly related to monetary policy.