KARACHI: The State Bank of Pakistan (SBP) on Monday announced to reduce the average Cash Reserve Requirement (CRR) for banks from 6 percent to 5 percent to increase banks’ lending capacity and support private sector credit growth.
Addressing a press conference on Monday following the Monetary Policy Committee meeting, SBP Governor Jameel Ahmed said the central bank is taking several measures to boost private sector credit, including a reduction in banks’ CRR.
Since the last MPC meeting, broad money (M2) growth picked up to 16.3 percent by January 9, mainly driven by a pickup in private sector credit and government borrowing.
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Private sector credit expanded by Rs578 billion during FY26 (till January 9) amidst easing financial conditions and the major borrowers included key sectors, such as textiles, wholesale and retail trade, and chemicals. In, addition, consumer financing also continued to increase.
Now, the SBP has decided to reduce the average CRR for banks by 100 bps from 6 percent to 5 percent on an average basis and 4 percent to 3 percent daily basis to create additional liquidity for banks to lend more to the private sector.
“In the wake of improved macroeconomic environment and to enhance banks’ capacity for lending to the private sector, it has been decided to reduce the average cash reserve requirement to 5 percent subject to a daily minimum requirement of 3 percent. The revised requirements will be effective from January 30, 2026”, a circular issued by the SBP said.
Previously, CRR requirement for banks was increased in Nov 2021 to mop up liquidity from market amidst higher inflation levels. Reverting to old ratio shows central bank’s comfort in inflation outlook.
The SBP Governor said that this move would increase banks’ lending capacity and support private sector credit growth. “When lending capacity is constrained, releasing liquidity allows banks to extend more credit to consumers and businesses,” he said.
The CRR is the proportion of banks’ applicable time and demand liabilities (TDLs) that they are required to hold in the form of cash with the SBP on a fortnightly average basis. Since SBP does not remunerate deposits that banks keep with it to meet the CRR, these funds do not generate any return.
Analysts are expecting that with this reduction in CRR, banking sector will have an additional liquidity of Rs300-315 billion for the private sector lending.
Copyright Business Recorder, 2026
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