The State Bank of Pakistan (SBP) has made a significant move to address liquidity issues in the financial system by injecting a total of Rs11.6 trillion into the market. This was done through a combination of conventional reverse repo operations and Shariah-compliant Modarabah-based Open Market Operations (OMO), reflecting the SBP’s dual approach to managing liquidity for both conventional and Islamic banks in the country. The majority of this amount, Rs11.2 trillion, was injected through the reverse repo OMO, while the remaining Rs320 billion was channeled through the Shariah-compliant Modarabah-based OMO.
In the conventional OMO, the SBP offered a total of Rs11.39 trillion to the market, with Rs11.28 trillion accepted by participating banks and primary dealers. The operation included two different tenors: a 7-day reverse repo injection of Rs208 billion at an interest rate of 11.05% and a larger 14-day injection of Rs11 trillion at a slightly lower rate of 11.01%. Reverse repo operations involve the SBP lending funds to banks and primary dealers against government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs), which act as collateral. By utilizing this mechanism, the SBP ensures that sufficient liquidity is available in the market to address short-term liquidity needs, thus maintaining stability in the financial system.
On the other hand, the Shariah-compliant OMO involved a total of Rs320 billion injected into the market, with Rs300 billion allocated to a 7-day reverse repo operation at an interest rate of 11.01%. The remaining Rs20 billion was offered through a 14-day non-bid-based operation at a rate of 11.06%. These operations are crucial for Islamic banks, which must comply with Shariah laws that prohibit interest-based transactions. The SBP used GOP Ijara Sukuk as eligible collateral for this operation, ensuring that the injection adhered to Islamic financial principles. The liquidity support provided through this route is essential for Islamic financial institutions to manage their liquidity needs and continue operations within the regulatory framework of Islamic finance.
Open Market Operations (OMOs) are a key tool for central banks to regulate liquidity in the financial system. By buying and selling government securities, the central bank can either inject or withdraw funds from the banking system, depending on liquidity requirements. The SBP’s decision to inject liquidity through these operations indicates that the central bank is actively managing short-term liquidity to prevent any disruptions in the functioning of the financial markets. The ability of banks and primary dealers to access liquidity during periods of market uncertainty helps to sustain confidence in the banking system and enables financial institutions to continue lending and supporting economic activity.
This infusion of Rs11.6 trillion is a clear indication that the SBP is committed to maintaining financial stability in Pakistan, particularly during periods when liquidity pressures can threaten the functioning of the financial system. By utilizing both conventional and Shariah-compliant OMO tools, the SBP is ensuring that the liquidity needs of all sectors of the banking industry—whether conventional or Islamic—are adequately met. The central bank’s actions play a vital role in maintaining the flow of credit to the economy, supporting businesses, and ensuring the continued functioning of Pakistan’s financial ecosystem.
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