ISLAMABAD: The State Bank of Pakistan conducted both conventional and Shariah-compliant open market operations on Thursday, injecting a cumulative Rs2.199 trillion into the banking system to meet short-term liquidity requirements. The move reflects the central bank’s ongoing efforts to manage system liquidity in line with prevailing monetary conditions and market demand.
According to the results released by the SBP, the bulk of the liquidity injection, amounting to Rs1.649 trillion, was carried out through a conventional reverse repo open market operation. The remaining Rs550 billion was injected through a Shariah-compliant Modarabah-based OMO, catering to liquidity needs within the Islamic banking segment.
Under the conventional OMO, the SBP conducted a seven-day reverse repo operation, offering Rs1.6488 trillion, all of which was accepted by the central bank. The accepted rate for the operation stood at 10.51%, with quoted rates ranging between 10.51% and 10.56%. A total of 14 quotes were offered and accepted, indicating strong participation from banks and primary dealers. No bids were received or accepted for the 14-day tenor under the non-borrowing requirement category.
The Shariah-compliant OMO was also conducted for a seven-day tenor under a reverse repo injection structure based on Modarabah. In this segment, banks and Islamic windows of conventional banks offered Rs644 billion, out of which the SBP accepted Rs550 billion. Similar to the conventional operation, the accepted rate was 10.51%, with quoted rates ranging between 10.51% and 10.56%. Six quotes were offered and accepted in the Shariah-compliant operation, while no activity was recorded for the 14-day tenor.
The SBP clarified that out of the total amount offered at the rate of 10.51% in the Shariah-compliant operation, bids worth Rs153 billion were received. From this, the central bank accepted Rs59 billion on a pro-rata basis, reflecting oversubscription at the cut-off rate and the SBP’s selective acceptance strategy.
Open market operations are one of the primary tools used by the State Bank of Pakistan to regulate liquidity in the banking system. Through these operations, the central bank injects or mops up funds depending on prevailing liquidity conditions, short-term interest rate movements and overall monetary policy objectives. OMOs play a crucial role in keeping overnight and short-term rates aligned with the policy rate corridor.
In the case of OMO injections, the SBP provides funds to banks and primary dealers against eligible collateral to address liquidity shortages. For conventional OMOs, eligible collateral includes marketable government securities such as Market Treasury Bills and Pakistan Investment Bonds. These securities are pledged under repo arrangements, allowing banks to access short-term funding while retaining ownership of the underlying assets.
For Shariah-compliant OMOs, the SBP uses Bai-Muajjal or Modarabah-based structures to ensure compliance with Islamic finance principles. In such transactions, Government of Pakistan Ijara Sukuk serve as eligible securities. These instruments enable the central bank to manage liquidity in the Islamic banking system without involving interest-based mechanisms.
On the other hand, when excess liquidity needs to be removed from the system, the SBP conducts OMO mop-up operations. In such cases, the central bank sells Market Treasury Bills to banks either on a repo or outright basis to absorb surplus funds. This helps prevent excessive liquidity from exerting downward pressure on short-term interest rates and inflation expectations.
Banks and primary dealers are eligible counterparties for conventional OMO transactions, while Islamic banks and specialised Islamic windows of conventional banks participate in Shariah-compliant OMOs. The dual structure allows the SBP to effectively manage liquidity across both conventional and Islamic segments of the banking sector.
The sizable liquidity injection reflects current market conditions, where banks are seeking short-term funds to meet regulatory requirements, settlement obligations and credit demand. It also comes amid expectations of an easing monetary cycle, with market participants closely watching interest rate signals and central bank actions.
By conducting both conventional and Shariah-compliant OMOs, the State Bank of Pakistan continues to demonstrate its commitment to maintaining financial stability, ensuring smooth functioning of money markets and supporting orderly transmission of monetary policy across the entire banking system.
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