Cash Reserve Ratio:

Check RBI website for CRR

In layman terms Cash reserve Ratio (CRR) is the amount of funds that the banks
have to keep with RBI. If RBI decides to increase the percent of this, the available
amount with the banks comes down & vice versa. RBI use this method (decrease of
CRR rate), to infuse liquidity in the market by providing excess money to the banks
for lending. The recent cut of 75 bps will infuse 48000 Cr in the system.

Now u must be wondering so whats in it for me, if RBI has cut the CRR.Just to
answer its a Good News for people who are planning to take loans in near future
specially Home Loan.Just to give e.g. More the Liquidity in Market means Easy
access to loans at Lower Interest Rates, It will increase Demand and thus High
InflationSounds bit confusing, its a cyclic processlet me explain, its like if banks
have more money in treasury then they cant keep it with them, to be profitable banks
would like to lend this money immediately. High Liquidity will lower the interest rates
as money supply is high & demand may not be high to match the supply.Once
interest rates starts cooling off, the demand for Homes, Car etc will increase as
people are getting cheaper credit & Loans become affordable..Once demand will
start increasing, the Inflation will go up.Therefore recent rate cut is reaction of RBI
to decreasing inflation. Lower inflation means demand is decreasing which impact
overall Growth of Economy so in order to increase demand, RBI needs to infuse
Liquidity in system. Hope I have explained it in very simple terms.