KARACHI- In order to enable the banking system to get more access to liquidity, the State Bank of Pakistan is likely to reduce cash reserve requirements further by 200 basis points to 5 percent, banking sources told The Nation on Monday. The central bank had already announced 200 basis points cut in the CRR while another 200 basis points reduction in the CRR is expected in phases that would strengthen the financial health of the banks, said sources. It is important to mention here that as on October 8, 2008, the State Bank of Pakistan had revised the cash reserve requirements by 200 bps to 7 percent for all deposits up to one-year maturity, which aimed at satisfying banks' withdrawal demands. The cut in CRR rate by 100bps to 8 percent has been effective from 11th October 2008 and while 100bps to 7 percent decrease would be effective from 15th November 2008 amid minimize banks' liquidity risk and ease the cash situation of the market, Triggered by weak financial position of the banking system, SBP is considering alteration of CRR ratio, the percentage of bank reserves to deposits and notes with the aim to expanding limit of deposits by the banking system. Technically speaking, the additional liquid assets are generated through repo operations ranging from Open Market Operations, Pakistan Investment Bonds to Market Related Treasury Bills. Contrary to cut in CRR rate, the central bank may also introduce interim policy measures or adjustments as it is also eyeing for making monetary policy more tightened which is expected to be revised soon by raising 50-100 basis points before the closing of current finical year, sources anticipated. The credit demand from the government and the private sector has also hurt the banks' liquidity conditions therefore, by increasing interest rate, the impact of the escalation in money supply growth and enhancement in currency circulation could be diluted, which is essential for keeping positive inflation outlook it would also restrain high borrowings. If the CRR rate is reduced to 5 percent then the banking system would obtain 320 billion rupees in the backdrop of expected 2 percent fall in the cash reserve requirement up to 200 basis points. In short-term, the banking system could be absorbed 80-100 billion rupees within a current week, analysts estimated. While in the long term, the banking system would get back 160 billion rupees after the central bank's decision of reducing the cash reserve requirement by 200 basis points to 7 percent. The decline in CRR which aims at financing banking system from the central bank could also increase the KIBOR and other interest rates in the market. The higher KIBOR might remain under pressure due to the present liquidity crunch, said experts. Liquid assets are the assets that are easily and cheaply turned into cash - notably cash and short-term securities. It includes cash and balances with banks, call money lending, lending under repo and investment in government securities. Since few months the domestic banking system has been facing liquidity and market risks for the number of reasons.   According to SBP, liquidity risk is simply defined as the "situation whereby the bank will be unable to accommodate decreases in liabilities or to fund increases in assets. The liquidity represents the bank's ability to efficiently and economically accommodate decreases in deposits and to fund increases in loan demand without negatively affecting its earnings". Market risk is the risk that changes in the market rates and prices will impair an obligor's ability to perform under the contract negotiated between the parties. Market risk reflects the degree to which changes in interest rates, foreign exchange rates, and equity prices can adversely affect the earnings of a bank. The reserve requirement is a bank regulation that set the minimum reserves each bank must hold to customer deposits and notes.