SBP raises banks' cash reserve requirement

The State Bank of Pakistan (SBP) said on Saturday that it has decided to increase the average Cash Reserve Requirement (CRR), to be maintained during a period of two weeks by scheduled banks, from 5% to 6%, and minimum CRR to be maintained each day from 3% to 4%.

The CRR is the amount of money that banks are required to keep with the SBP, and is applicable on demand liabilities and time liabilities with tenor of less than a year.

Time liabilities with tenor of more than one year shall continue to be exempted from maintenance of cash reserves," added the SBP statement.

"With the economy recovering briskly from last year’s acute Covid shock, there is a need to gradually normalise policy settings, including the growth of monetary aggregates.

"In recent months, real money supply growth has drifted above its trend. Today’s measure will moderate this growth as well as domestic demand, thereby helping to sustain the current economic recovery, achieve the government’s medium-term inflation target, and reduce pressures on the rupee."

The move comes as Pakistan's rupee closed at a historic low against the US dollar in the inter-bank market on Friday.

Historic weakness: Pakistan's rupee hits all-time low against US dollar

The SBP said that this measure is likely to have a positive impact on deposit mobilisation as the banks would be encouraged to generate more deposits to cope with additional liquidity requirements for their operations.

"This would incentivise banks to offer better returns on deposits to attract these funds; thus serving the SBP objective of encouraging savings.

"It may also be highlighted that waiver of CRR on time liabilities with tenor more than a year will encourage banks to raise more long-term deposits, which will facilitate asset-liability matching and enable banks to extend long term loans for construction and housing financing."