The State Bank of Pakistan has reduced the Cash Reserve Requirement (CRR) for banks by 100 basis points, lowering it to 5 per cent on a weekly average basis and 3 per cent daily, according to the governor’s press briefing on Monday.
The move is expected to inject additional liquidity into the banking system. The CRR had previously been raised in November 2021 to absorb excess liquidity at a time when inflationary pressures were rising, indicating that the central bank is now more comfortable with the inflation outlook.
CRR refers to the portion of banks’ time and demand liabilities that must be maintained as cash with the SBP. These balances do not earn any return, which means banks cannot generate income on funds parked to meet the requirement.
According to Topline Securities, the reduction could release approximately Rs. 300 billion to Rs. 315 billion into the banking system. If this liquidity is deployed at an assumed yield of 10 per cent, it could result in an annualised bottom-line impact of around 2 per cent for banks.
The decision is likely to support credit expansion and improve banks’ earnings capacity, while also signalling increased confidence by the central bank in maintaining price stability.
