SBP Reduces Cash Reserve Requirement for Banks

TheState Bank of Pakistan(SBP) has reduced the Cash Reserve Requirement (CRR) for banks by 100 basis points, lowering it to 5 percent on a weekly average basis and 3 percent on a daily basis, according to the SBP governor’s press briefing earlier yesterday. The move is expected to inject additional liquidity into the banking system. The CRR had been raised in November 2021 as part of measures to absorb excess liquidity amid rising inflation. Looks like the central bank has become incredibly comfortable with the country’s inflation outlook. CRR represents the portion of banks’ time and demand liabilities that must be maintained as cash with the SBP. These balances are not remunerated, meaning banks do not earn any return on funds parked to meet the requirement. 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 deployed at an assumed yield of 10 percent, this could translate into an annualized bottom-line impact of around 2 percent for banks.