The State Bank of Pakistan (SBP) on Saturday raised the Cash Reserve Requirement (CRR) by one percentage point for scheduled banks for the first time in 13 years.
The move is a bid to curb excess liquidity on the banking system, which analysts had said is contributing to inflation, as per local media reports.
“SBP has decided to increase the average Cash Reserve Requirement (CRR) to be maintained during a period of two weeks by scheduled banks, from 5 per cent to 6pc and minimum CRR to be maintained each day from 3pc to 4pc,” the central bank said in a statement.
The revised average CRR of 6pc will be effective from November 12, whereas the revised daily minimum requirement of 4pc will be effective from November 15.
“With the economy recovering briskly from last year’s acute Covid-19 shock, there is a need to gradually normalise policy settings, including the growth of monetary aggregates,” the SBP said.
“In recent months, real money supply growth has drifted above its trend.”
The bank said measures will moderate money supply 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”.
“This would incentivise banks to offer better returns on deposits to attract these funds; thus serving the SBP objective of encouraging savings,” the statement said.
“It may also be highlighted that [a] 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.”
