Increase in CRR will make the banks to place more of their money in RBI , for which the oppurtunity cost should be noted if it is available with the same banks. Increased CRR is obviously aimed at reducing the lending by the banks which in turn will reduce the money flow in the economy. Reduced money flow directly means reduced buypower of the households which in turn will reduce the prices especially food.
What happens if the increase in CRR doesnt bring inflation down , what will be next step of RBI and It seems RBI is thinking of reverse repo as a backup measure.
