The State Bank of Pakistan (SBP) has undertaken a significant liquidity injection into the domestic banking system, cumulatively disbursing Rs1.8 trillion through a combination of conventional and Shariah-compliant Open Market Operations (OMOs). This move underscores SBP’s proactive approach to managing market liquidity and supporting financial stability amid evolving economic conditions.
The bulk of the funds, amounting to Rs1.59 trillion, were injected through conventional reverse repo OMOs. These injections were distributed across multiple tenors, with Rs90 billion allotted for 7-day reverse repo and Rs1.5 trillion for 14-day reverse repo operations. The accepted rates for these operations ranged from 11.03 percent for 7-day tenors to 11.01 percent for 14-day tenors, reflecting a consistent cost of borrowing for participating banks.
In addition to conventional instruments, SBP also injected Rs209.9 billion through Shariah-compliant Modarabah-based OMOs, catering to Islamic banks and specialized Islamic windows of conventional banks. The 7-day Shariah-compliant reverse repo was accepted at a rate of 11.05 percent. No 14-day Shariah-compliant OMOs were conducted during this round.
Open Market Operations are a vital tool for the central bank to manage liquidity conditions within the banking system. Through OMOs, SBP can either inject funds to address liquidity shortages or mop up excess liquidity to maintain stability. Operationally, for injection operations, the central bank lends funds to banks and primary dealers against eligible collateral, including marketable government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs).
For Shariah-compliant liquidity management, the Bai Muajjal or Modarabah-based tools are employed, where eligible securities include GOP Ijara Sukuk. These tools ensure that Islamic banks and specialized windows can effectively participate in liquidity management without compromising Shariah principles. By leveraging both conventional and Islamic mechanisms, SBP aims to maintain a balanced and inclusive approach to financial market interventions.
The recent OMO reflects the central bank’s commitment to ensuring sufficient liquidity in the financial system, particularly at a time when market participants require stable access to funds. By injecting Rs1.8 trillion, SBP aims to support smooth functioning of the banking sector, facilitate credit flows, and stabilize short-term interest rates.
Analysts note that such large-scale interventions not only provide immediate relief to liquidity-constrained banks but also signal SBP’s readiness to maintain financial stability through strategic and timely operations. These injections are expected to bolster confidence among market participants, ensuring continued investment and lending activities while keeping interbank market rates in check.
The OMO also highlights the growing importance of Shariah-compliant instruments in Pakistan’s financial ecosystem. By accommodating Islamic banking institutions, SBP is promoting inclusive liquidity management, reinforcing the parallel development of conventional and Islamic financial markets.
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