State Bank of Pakistan cuts rate for 2 schemes

The State Bank of Pakistan (SBP) yesterday further slashed the interest rate for two refinance schemes to 5% to boost long-term investment both in domestic and exportoriented 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 7% to 5%,” a press release said.

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

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 5% from existing 7% and on Long-Term Financing Facility (LTFF) for nontextile sector to 5%, from 6%.

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 4%,” 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, Rs10.5bn 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 5% for textile and 6% for non-textile sectors,” said the SBP.

The SBP has now reduced its refinance rate for non-textile sector by 1% and therefore the end user rate of all sectors will be 5%.