The Monetary Board of the Central Bank has decided to reduce the Statutory Reserve Ratio (SRR)—the portion of deposit liabilities commercial banks are required to keep as cash deposits with the Central Bank— by 200 basis points, from 4 percent to 2 percent with effect from August 16, 2023.

“This decision was taken with the view to inject liquidity to the banking system and further reduce market liquidity deficit on a permanent basis, in line with the current monetary policy stance of the Central Bank,” the Central Bank said.

According to the Central Bank, this reduction in the SRR is expected to release around Rs.200 billion of liquidity to the domestic money market, which would enable a further downward adjustment in the market lending rates as a result of the reduction in cost of funds of LCBs, thereby supporting the expansion in credit flows to the economy.

“While LCBs are expected to pass the benefit of the SRR reduction to their customers without delay, the Central Bank will continue to monitor market developments, and take appropriate administrative measures, if required, to ensure faster reduction of market lending rates,” the Central Bank said.