Karachi, January 26, 2026 – The State Bank of Pakistan (SBP) on Monday announced a reduction in cash reserve requirements (CRR) for banks, aiming to improve liquidity and enhance credit flow to the private sector amid an improving macroeconomic environment.
According to the central bank, the average cash reserve requirement has been reduced to 5%, subject to a daily minimum requirement of 3%. The revised CRR will come into effect from January 30, 2026.
SBP stated that the decision was taken to strengthen banks’ capacity to extend financing to businesses and support economic activity, as inflation pressures ease and financial stability improves.
CRR cut expected to inject Rs300 billion into banking system
Analysts believe the reduction in both fortnightly and daily CRR by 100 basis points will release substantial liquidity into the banking sector. The daily CRR now stands at 3%, while the fortnightly requirement has been lowered to 5%.
According to analysts at Topline Securities Limited, the move is expected to inject approximately Rs300 billion into the banking system. Since banks do not earn any return on funds parked as CRR, the freed-up liquidity could generate an additional yield of around 10%, potentially raising banking sector profitability by up to 2% and supporting broader economic growth.
It is worth noting that the CRR was last increased in November 2021 as part of efforts to absorb excess liquidity amid elevated inflation.
Policy rate remains unchanged at 10.5%
Despite expectations of a rate cut, the Monetary Policy Committee (MPC) kept the policy rate unchanged at 10.50% in its latest meeting. Market participants had largely anticipated a reduction of 50–75 basis points, making the decision a surprise for many analysts.
Key macroeconomic highlights shared by SBP
• GDP growth revised upward: SBP raised its real GDP growth outlook to 3.75–4.75%, citing stronger large-scale manufacturing performance and lower-than-expected flood impact on agriculture.
• Foreign exchange reserves outlook: FX reserves are projected to exceed US$20.2 billion by December 2026, sufficient to cover three months of imports.
• Current account deficit: Expected to remain within the lower half of the 0–1% of GDP range, supported by strong remittances.
• Inflation outlook unchanged: Average inflation for FY26 is projected to stay within the 5–7% medium-term target range.
Economists view the CRR reduction as a targeted liquidity easing measure, complementing the stable policy rate stance while encouraging banks to increase lending without stoking inflationary pressures.