The bank reserve ratio (BRR) is the liquidity that Chinese banks maintain with the Chinese central bank (People’s Bank of China). The PBOC cuts the BRR to infuse more liquidity by making more funds available in the economy. In the Chinese case, the move is likely to infuse nearly $126 billion into the system.

In India the equivalent ratio is called the cash reserve ratio (CRR) which has been currently pegged at 4%. Banks do not earn any interest on this money. When the CRR is cut, it means banks hold lower reserves (bearing zero interest) with the RBI and this helps the Indian banks to lend more to the industry.

Cutting bank cash reserve ratio (CRR), or the amount of funds they set aside with the central bank, are among options that the Reserve Bank of India (RBI) normally looks at to improve liquidity in the system. Quite often, the RBI combines the CRR cut with buying more bonds from the open market and opens a special window to inject liquidity.