November 02, 2008	Sunday	Ziqa'ad 3, 1429

KARACHI, Nov 1: The State Bank on Saturday moved to cut the banks’ cash reserve requirement (CRR) by one per cent a fortnight before it was due, injecting more liquidity into the banking system. The cut was due on Nov 15.

“It has been decided to reduce the CRR by one per cent with immediate effect instead of Nov 15 as earlier notified,” an SBP circular said.

On Oct 17, the SBP had announced a reduction in CRR — the reserve which banks are required to keep with the SBP as security for depositors — by two to five per cent.

The SBP has been regularly taking steps to keep the country’s banking system liquid since the start of the banking crisis in the United States and Europe, which hurt most emerging markets.

However, fear of a liquidity crunch has forced banks to keep funds at the maximum level and a possible panic may lead to massive withdrawal of deposits, bankrupting many banks.

So far no bank has shown any vulnerability and the State Bank governor believes that Pakistani banks will remain largely unaffected by the turmoil in the global banking industry.

Earlier, the SBP eased its tight monetary policy, injecting Rs270 billion into the banking system to help the sector tackle a credit crunch and restore depositors’ confidence. The market was given an immediate relief when Rs180 billion was injected on Oct 17.

The central bank also exempted time deposits of one-year tenure and above from the Statutory Liquidity Requirements (SLR), yielding Rs120 billion more in cash in the market.

Local banks’ move to tighten liberal lending pattern and the recent steps taken by the SBP suggest that the domestic banking industry is feeling the pinch of the global financial crisis, according to analysts.