Question

How can the statutory reserve requirements on commercial banks can be used as a monetary policy tool during the Covid-19 pandemic?

Answer 1

Answer - The statutory reserve are the reserves which the commercial banks have to maintain with themselves as percentage of deposits as per the guidelines of the central bank. In the situation of covid 19 , the money supply needs to increase to prevent the economy from going into recession or deepening it more.

Hence as a part of the monetary policy , if the SLR rate will be reduced by the central bank , banks will have to keep lesser amount as reserves and they can lend more money as loans thus increasing the money supply and boosting the demand in economy.