The State Bank of Pakistan (SBP) conducted a large-scale Open Market Operation (OMO) today, injecting a cumulative Rs12.5 trillion into the financial system. The liquidity was provided through both conventional reverse repo operations and Shariah-compliant Modarabah-based OMOs, highlighting the central bank’s ongoing efforts to balance liquidity conditions across both conventional and Islamic banking segments.
According to details released, the bulk of the injection, amounting to Rs12.2 trillion, came through conventional reverse repo OMOs. These funds were provided against government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs). The operation included tenors of seven and fourteen days, with accepted rates ranging between 11.01 and 11.03 percent. Out of the total offers of Rs12.3 trillion received, the SBP accepted Rs12.2 trillion, reflecting the scale of liquidity demand within the system.
Alongside the conventional operation, the SBP also conducted a Shariah-compliant Modarabah-based OMO, injecting Rs322.5 billion into the Islamic banking sector. These funds were extended on a seven-day tenor at accepted rates of 11.06 percent. The use of this Shariah-compliant mechanism underscores SBP’s parallel focus on ensuring adequate liquidity for Islamic banks and their specialized Islamic windows. Government Ijara Sukuk served as eligible collateral for this operation, aligning with Shariah principles.
The SBP explained that OMOs are critical tools in its monetary management framework, designed to either inject or absorb liquidity depending on system-wide requirements. In the case of injections, the central bank lends funds to commercial banks and primary dealers against collateral to ease liquidity shortages. Conversely, mop-up operations involve the sale of securities to absorb excess liquidity from the market. Both instruments play a vital role in stabilizing short-term interest rates and maintaining orderly market conditions.
Market analysts note that today’s OMO reflects heightened liquidity pressures faced by the banking system, likely driven by upcoming government debt settlements, seasonal funding needs, and market volatility. By conducting such large-scale injections, the SBP aims to ensure smooth functioning of interbank markets, safeguard settlement processes, and prevent disruptions in the credit supply chain.
The inclusion of both conventional and Islamic windows in the liquidity injection highlights SBP’s dual focus on Pakistan’s diverse banking structure. With Islamic banking now representing an increasingly significant share of the financial system, the Modarabah-based OMO mechanism ensures that Islamic institutions are not disadvantaged when liquidity constraints emerge.
Historically, OMOs have been a cornerstone of SBP’s monetary toolkit, enabling the regulator to fine-tune liquidity without resorting to frequent adjustments in its policy rate. By targeting liquidity through collateralized transactions, the central bank is able to maintain monetary discipline while simultaneously meeting short-term funding needs of banks.
As Pakistan’s financial system continues to navigate a challenging macroeconomic environment, such operations have become more frequent and sizable. Analysts expect the SBP to remain active in liquidity management in the coming months, balancing the need for stability in money markets with its broader inflation and monetary policy objectives.
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