KARACHI: The State Bank of Pakistan (SBP) reduced the Special Cash Reserve Requirement from the current 15 percent to 10 percent of total foreign currency (FE-25) deposits.
According to circular No. 08 released by SBP’s Domestic Market & Monetary Management Department on Friday, this will be effective from April 20, 2020. All conventional banks and development finance institutions will be required to maintain cash reserves in US dollars equivalent of their total FE-25 deposits on a daily basis with the SBP. For Cash Reserve Account ($), the SBP has set it at 5 percent, while for Special Cash Reserve Account ($), it is set at 10 percent. This reduced requirement is expected to temporarily provide a liquidity cushion for banks.
This is unusual, since the combination of Cash Reserve Account requirement at 5 percent and Special Cash Reserve Account at 15 percent, has been more or less unchanged since 2002. In fact, the SBP only temporarily reduced the requirement, once, in 2007. According to Circular No. 14 released by the SBP’s Banking Surveillance Department in December 2007, the Special Cash Reserve Requirement was brought down from 15 percent to 5 percent.
It was then raised back to 15 percent in June 2008, according to circular No. 14 released by the SBP’s Banking Surveillance Department.