KARACHI: The State Bank of Pakistan (SBP) on Thursday further slashed the interest rate for two refinance schemes to five per cent to boost long-term investment both in domestic and export-oriented sectors.

“To further improve the incentive under the BMR scheme (balancing, modernisation and restructuring), the SBP has lowered the end user mark-up rates from existing 7pc to 5pc,” a press release said.

Since mid-March, the central bank has reduced the key policy rate by 625 basis points to 7pc.

To extend the benefits of this reduction to users of refinance schemes, the SBP has now decided to align the end user markup rates for promoting investment in the country.

Specifically, it has curtailed the end user markup rates on Temporary Economic Refinance Facility (TERF) to 5pc from existing 7pc and on Long-Term Financing Facility (LTFF) for non-textile sector to 5pc, from 6pc.

The central bank introduced the Temporary Economic Refinance Facility (TERF) to provide stimulus to the economy by supporting new investment and BMR of the existing projects.

“The SBP will now be providing refinance to banks at 1pc with banks’ maximum margin of 4pc,” the press release said. It has also allowed TERF in cases where letter of credits/inland LCs were opened prior but retiring after the introduction of the scheme on March 17.

According to the SBP, these measures, in the backdrop of earlier policy action of allowing BMR under TERF, are expected to further support economic activity, new long-term investment and employment generation.

“Under this scheme, up till July 2, Rs10.5 billion have been approved by banks for 21 projects,” said the SBP.

The LTFF is one of the oldest refinance schemes of SBP under which liquidity is available for export-oriented projects for purchase of imported and locally manufactured new plant and machinery.

However, in March, the central bank opened the LTFF to all sectors across the board. “Earlier, the end user markup rate under this scheme was 5pc for textile and 6pc for non-textile sectors,” said the SBP. The SBP has now reduced its refinance rate for non-textile sector by 1pc and therefore the end user rate of all sectors will be 5pc.

Published in Dawn, July 9th, 2020