July 8, 2020: 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.
SBP has reduced the policy rate by 625 basis points since 17th March, 2020 to 7 percent. 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, SBP has curtailed the end-user markup rates on Temporary Economic Refinance Facility (TERF) to 5% from the existing 7% and on Long Term Financing Facility (LTFF) for the non-textile sector to 5% from 6%.
SBP has also introduced the Temporary Economic Refinance Facility (TERF) 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% to 5%.
SBP will now be providing refinance to banks at 1% with banks’ maximum margin of 4%. 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 2nd July 2020, Rs10.5 billion have been approved by banks for 21 projects.
Long Term Financing Facility (LTFF) 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 was 5% for the textile sector and 6% for non-textile sectors. State Bank has now reduced its refinancing rate for the non-textile sector by 1% and therefore the end-user rate for all sectors across the board will be 5%.
It is expected that the above measures will help facilitate long term investment in both domestic and export markets.