KARACHI: The State Bank of Pakistan (SBP) has decided to increase the average Cash Reserve Requirement (CRR), to be maintained during a period of two weeks by scheduled banks, ARY NEWS reported.
According to details shared by the Central bank’s spokesperson from its Twitter handle, the average Cash Reserve Requirement (CRR) has been increased from five percent to six percent and minimum CRR is to be maintained each day from three percent to four percent.
It is pertinent to mention here that the CRR is the amount of money that banks are required to keep with the State Bank of Pakistan and is applicable on demand liabilities and time liabilities with the tenor of less than a year.
While explaining the move, the SBP in its release shared that with the economy recovering briskly from last year’s acute Covid shock, there is a need to gradually normalize policy settings, including the growth of monetary aggregates.
The bank shared
that in recent months, real money supply growth has drifted above its trend. “Today’s measure will moderate this 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,” he said.
In addition, the SBP said that the move is likely to have a positive impact on deposit mobilization as the banks would be encouraged to generate more deposits to cope with additional liquidity requirements for their operations.
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“This would incentivize banks to offer better returns on deposits to attract these funds; thus serving the SBP objective of encouraging savings,” the spokesman said.
It may also be highlighted that 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.
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