Commercial Banks Borrow Rs9.61 Trillion from SBP, Rate Cut Expected

Commercial banks in Pakistan have borrowed Rs9.61 trillion from the State Bank of Pakistan (SBP) at an interest rate of 13.04 for a seven-day period, as reported by the central bank on Friday.

However, no bids were received for fresh borrowing for the longer 28-day period.

Financial analysts are anticipating that the SBP will reduce its key policy rate by 1 percentage point to 12 on Monday, following a cumulative 9-percentage-point reduction since June 2024, which has brought the current rate to 13. If the rate cut is implemented, it will lower borrowing costs, allowing commercial banks to acquire additional funds at more favorable rates after the monetary policy review.

Commercial banks usually borrow from the SBP for 7 and 28 days to manage liquidity, catering to funding needs for governments, businesses, and individuals. Much of this borrowing is used to refinance federal and provincial governments, helping to bridge fiscal deficits.

Under IMF conditions, local governments are prohibited from directly borrowing from the central bank. Instead, the SBP provides financing to commercial banks, which then lend to the governments to meet obligations such as repaying maturing debt, making interest payments, and covering salaries and pensions amid low tax revenue collections.

The ongoing reliance on borrowing is due to insufficient revenue generation by the Federal Board of Revenue (FBR), which is unable to meet financing demands at both federal and provincial levels