Reserve Requirement Ratio

The reserve requirement ratio (RRR), which is also known as cash reserve ratio (CRR) is the percentage of reservable liabilities that commercial banks must hold onto, within its own institution or with the central bank.

The RRR is set up by the country’s central bank to ensure commercial banks have enough assets to pay its depositors in the event of unusually high withdrawals.

Some central banks use RRRs for monetary policy. The fall in RRR tends to stimulate economic activity because it means banks will have more assets to lend to borrowers.