KARACHI, Aug 10: The State Bank has lowered the special cash reserves on new foreign currency accounts from 20 to 15 per cent. But it has kept intact the mandatory reserves at five per cent.

The central bank conveyed this decision to all banks and non- bank financial institutions through a circular (BSD No 16) issued on Saturday. The decision would take immediate effect.

The circular told all the banks and NBFIs that from now onwards they would maintain cash reserves in the US dollars equivalent to not less than 20 per cent of their total fresh foreign currency deposits instead of 25 per cent. Of this five per cent would continue to be treated as mandatory reserves and the remaining 15 per cent as special cash reserves.

On mandatory cash reserves banks get no return but on special reserves they do get a profit the rate of which is linked with six-month LIBOR (London inter-bank offered rate). Bankers say the special cash reserves requirement has been lowered in view of an impressive increase in foreign exchange reserves that have now reached $7 billion.