SBP reduces markup rate to 5

SBP reduces markup rate to 5 percent on refinance schemes

Sher Afzal

KARACHI: Taking cognizance of the negative fallout of COVID-19 pandemic for the economy, State Bank of Pakistan (SBP) has been constantly taking steps to safeguard the businesses and households and a reduction in the policy rate has been a key step since March 2020. 

The SBP has reduced the policy rate by 625 basis points since March 17, to 7 percent, said a statement on Wednesday. 

To extend the benefits of this reduction in the policy rate to the users of its refinance schemes, SBP has now decided to align the end user markup rates on two of its refinance schemes for promoting investment in the country.

Specifically, the SBP has curtailed the end user markup rates on Temporary Economic Refinance Facility (TERF) to 5 per cent from the existing 7 per cent and on Long Term Financing Facility (LTFF) for non-textile sector to 5 per cent from 6 percent.

The SBP introduced this facility to provide stimulus to the economy by supporting new investment and balancing, modernization and restructuring (BMR) of the existing projects.

To further improve the incentive under the scheme, SBP has lowered the end user mark-up rates from existing 7 per cent to 5 per cent.

The SBP will now be providing refinance to banks at 1 per cent with banks’ maximum margin of 4 per cent.

Further, SBP has also allowed the TERF facility in cases where LCs/Inland LCs were opened prior, but retiring after the introduction of the scheme on March 17, 220.

These measures, in the backdrop of earlier policy action of allowing BMR under TERF, are expected to further support the economic activity, new long term investment and employment generation. Under this scheme, up till July 02, 2020, Rs 10.5 billion have been approved by banks for 21 projects.

The Temporary Economic Refinance Facility is one of the oldest refinance schemes of SBP under which financing is available for export-oriented projects for purchase of imported and locally manufactured new plant and machinery. 

In March, 2020 SBP opened the LTFF to all sectors across the board. Earlier the end user markup rate under this scheme were 5 per cent for textile sector and 6 per cent for non-textile sectors.

State Bank has now reduced its refinance rate for non-textile sector by 1 per cent and therefore the end user rate for all sectors across the board will be 5 per cent.

It is expected that the above measures will help facilitate long term investment in both domestic and export market.

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