KARACHI: Commercial banks in Pakistan have borrowed Rs9.61 trillion from the State Bank of Pakistan (SBP) at an interest rate of 13.04% for a seven-day period, the central bank reported on Friday.
However, no bids were received for fresh borrowing for the longer 28-day period.
Financial analysts expect the SBP to reduce its key policy rate by 1 percentage point to 12% on Monday, following a cumulative 9-percentage-point reduction since June 2024, bringing the current rate to 13%. If implemented, the rate cut would lower borrowing costs, allowing commercial banks to acquire additional funds at reduced rates after the monetary policy review.
Commercial banks typically borrow from the SBP for 7 and 28 days to manage liquidity, catering to funding needs from governments, businesses, and individuals. Much of this borrowing is used to refinance federal and provincial governments, helping them bridge fiscal deficits.
Under IMF conditions, local governments are barred from directly borrowing from the central bank. Instead, the SBP provides financing to commercial banks, which then lend to governments to meet obligations such as repaying maturing debt, making interest payments, and covering salaries and pensions amid low tax revenue collections.
The continued reliance on borrowing stems from insufficient revenue generation by the Federal Board of Revenue (FBR), which falls short of financing demands at both federal and provincial levels.