During festive season, the currency deposit ratio _____________ .

Question

Read the following text carefully:
“The Reserve Bank of India (RBI) announced a 50 basis point Repo Rate cut to 5.50% from 6%.”
In the light of the given text and common understanding, answer the following questions:

[(i)] Identify the economic issue indicated in the above text.
[(ii)] Explain the likely causes and consequences of this step of RBI on the economy.

Answer 1

The currency deposit ratio typically rises during holiday periods. This trend is driven by several economic factors:

Increased Expenditures: Festive occasions prompt greater consumer spending on gifts, adornments, and associated items. This surge in spending can lead to more cash withdrawals and a reduction in deposits.
Preference for Physical Currency: Individuals might favor holding more cash for spontaneous purchases, temporarily increasing currency holdings in proportion to deposits.
Seasonal Remuneration: Employees often receive bonuses or additional payments, boosting cash availability. While some of this income may be deposited, a significant portion is frequently spent quickly, thus elevating the currency deposit ratio.

Collectively, these elements result in an uptick in the currency deposit ratio during these periods. Comprehending these seasonal financial patterns is vital for forecasting cash flow and formulating economic strategies.

During festive season, the currency deposit ratio _____________ .

The Correct Option is B

Solution and Explanation

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