In a significant move to manage short-term liquidity within the financial sector, the State Bank of Pakistan (SBP) on Thursday conducted a major Open Market Operation (OMO), injecting a total of Rs1 trillion into the money market. The operation comprised both conventional and Shariah-compliant instruments aimed at easing liquidity constraints faced by commercial banks and primary dealers.
Of the total amount, Rs898 billion were injected through the conventional reverse repo mechanism. This method involves the central bank lending funds to banks against eligible collateral, typically in the form of marketable government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs).
The injection was carried out in two tranches under the conventional window. In the 7-day tenor, SBP accepted Rs198 billion at a rate of 11.04 percent. For the 14-day tenor, a significantly higher amount of Rs700 billion was accepted at 11.01 percent. The bids for both tranches were fully accepted, indicating the central bank’s strong intent to support short-term liquidity in the system.
In addition to the conventional liquidity operation, the SBP also carried out a Shariah-compliant Modarabah-based OMO, under which Rs106 billion were injected. This included Rs103 billion in the 7-day tenor and Rs3 billion in the 14-day tenor, both accepted at a fixed rate of 11.13 percent. These Islamic transactions were structured using Modarabah, a Shariah-compliant financial mechanism that supports liquidity for Islamic banking institutions in adherence to Islamic finance principles.
Shariah-compliant OMOs are designed specifically for Islamic banks and Islamic windows of conventional banks, using instruments like Government of Pakistan Ijara Sukuk as eligible collateral. These operations allow Islamic institutions to participate in liquidity management while adhering to non-interest-based frameworks.
Open Market Operations are among the primary monetary policy tools employed by SBP to either inject funds into or absorb surplus liquidity from the banking system. In the case of liquidity injections, the SBP lends to banks through repos (repurchase agreements) against approved collateral to maintain market stability and ensure smooth functioning of the interbank system. Conversely, in a mop-up scenario, SBP sells government securities to absorb excess liquidity, thereby curbing inflationary pressures.
The large-scale injection signals that the central bank is responding proactively to tight liquidity conditions in the financial system, potentially driven by increased government borrowing needs, fiscal operations, or seasonal cash flow imbalances within commercial banks. By making funding readily available, SBP aims to stabilize short-term interest rates and support consistent credit flow in the economy.
Reinforcing this approach, the dual-track strategy of including both conventional and Islamic tools highlights SBP’s efforts to maintain financial inclusion across diverse banking models in Pakistan. With increasing reliance on digital payments and formal financial systems, maintaining liquidity in a timely and structured manner has become even more critical.
This OMO is part of SBP’s broader liquidity management framework and reflects its ongoing role in preserving financial market efficiency and ensuring macroeconomic stability in a challenging economic environment.