Central bank lowers cash reserve requirement for banks by 100 basis points
The State
Bank of Pakistan (SBP) has lowered the Cash Reserve Requirement (CRR) for
banks by 100 basis points, bringing it down to 5 per cent on a weekly average
basis and 3 per cent on a daily basis. The announcement was made by the SBP
governor during a press briefing on Monday.
The reduction is expected to inject additional
liquidity into the banking system. The CRR was last increased in November 2021
to mop up excess liquidity amid rising inflationary pressures. The latest move
suggests that the central bank is now more comfortable with the inflation
outlook.
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The CRR represents the portion of banks’ time
and demand liabilities that must be maintained as cash with the SBP. These
funds do not earn any return, limiting banks’ ability to generate income on the
amount held to meet the requirement.
According to estimates by Topline Securities,
the CRR cut could release between Rs. 300 billion and Rs. 315 billion into the
banking system. If this liquidity is deployed at an assumed yield of 10 per
cent, it could translate into an annualised bottom-line impact of approximately
2 per cent for banks.
Overall, the decision is expected to support
credit growth, enhance banks’ earnings potential, and signal increased
confidence by the central bank in sustaining price stability.
Source:
Business Recorder