The State Bank of Pakistan (SBP) has reduced the Cash Reserve Requirement (CRR) for commercial banks by 100 basis points, bringing it down to 5 percent on a weekly average basis and 3 percent on a daily basis, according to a press briefing by the SBP governor earlier yesterday. This move is expected to inject substantial additional liquidity into the banking system and is seen as a signal of the central bank’s confidence in the country’s inflation trajectory.
The CRR had previously been raised in November 2021 as part of measures to absorb excess liquidity in the banking system amid rising inflation. By lowering the CRR, the SBP allows banks to retain a greater portion of their deposits for lending, investment, and other productive activities, which could support credit expansion and stimulate economic activity. The reduction demonstrates the central bank’s proactive approach to balancing liquidity management with economic growth objectives.
Cash Reserve Requirement represents the portion of banks’ time and demand liabilities that must be maintained as cash with the SBP. These balances are non-remunerated, meaning banks do not earn any interest or return on the funds held to meet this requirement. By reducing the CRR, the central bank effectively frees up these previously parked funds, providing banks with greater flexibility to deploy capital in the market.
According to Topline Securities, the reduction is likely to release around Rs. 300 billion to Rs. 315 billion in additional liquidity for the banking sector. If these funds are deployed at an assumed yield of 10 percent, the measure could translate into an annualized bottom-line impact of approximately 2 percent for banks. This represents a significant opportunity for financial institutions to improve profitability, expand lending portfolios, and enhance overall operational efficiency.
Market analysts note that the CRR reduction comes at a time when inflation in Pakistan has shown signs of moderation, enabling the central bank to adopt a more accommodative monetary stance. The additional liquidity is expected to improve the availability of credit for businesses and consumers, supporting economic activity across multiple sectors. Banks may use the freed-up funds to extend loans, invest in market instruments, or optimize internal liquidity management.
The move also aligns with SBP’s broader strategy to maintain stability in the financial system while promoting sustainable growth. By carefully adjusting reserve requirements, the central bank ensures that liquidity is sufficient to meet credit demand without compromising financial stability or contributing to inflationary pressures. The CRR adjustment, combined with other monetary policy measures, underscores the SBP’s commitment to fostering a balanced economic environment conducive to growth, investment, and financial market confidence.
Overall, the reduction in the Cash Reserve Requirement is a significant policy step that is expected to strengthen the operational capacity of banks, increase market liquidity, and support economic activity while reflecting the central bank’s confidence in the evolving inflation and macroeconomic outlook in Pakistan.
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