In a major liquidity management move, the State Bank of Pakistan has injected a substantial Rs10.34 trillion into the interbank market through a combination of conventional reverse repo and Shariah-compliant Modarabah-based Open Market Operation. This significant intervention comes at a time when the domestic banking system is facing tight liquidity conditions, highlighting the central bank’s proactive stance in ensuring financial stability and supporting the flow of credit.
According to the central bank’s latest operation details, Rs9.94 trillion were injected through the reverse repo OMO, while Rs400 billion were channeled via Shariah-compliant Modarabah-based mechanisms. This dual approach reflects SBP’s strategy to address both conventional and Islamic banking sector liquidity requirements simultaneously.
The OMO for conventional banks was executed across two tenors. In the 7-day tenor, SBP accepted Rs1.29 trillion at a cut-off rate of 11.01 percent. For the 14-day tenor, it accepted Rs8.65 trillion at the same cut-off rate of 11.01 percent. The total amount offered for this conventional segment stood at Rs10.05 trillion, out of which Rs9.94 trillion were accepted, signaling a robust participation by banks and primary dealers.
In parallel, SBP also carried out Shariah-compliant Modarabah-based OMO to support Islamic banking institutions. Under the 7-day tenor, Rs400 billion were injected at a rate of 11.09 percent. An additional Rs20 billion were offered for the 14-day tenor, but those bids were rejected. The total offered amount for the Islamic operation was Rs472 billion, with Rs400 billion accepted.
OMO serves as a key monetary policy tool allowing the central bank to manage liquidity in the banking system. When SBP injects liquidity, it effectively lends funds to banks and primary dealers against eligible collateral such as Market Treasury Bills and Pakistan Investment Bonds to ease liquidity shortages. Conversely, in a mop-up operation, SBP sells these securities to absorb excess liquidity, helping to maintain interest rate stability and support monetary policy transmission.
In the case of Shariah-compliant operations, SBP uses Bai-Muajjal transactions with Government of Pakistan Ijara Sukuk as eligible collateral. This ensures liquidity support extends to Islamic banks and Islamic windows of conventional banks without compromising Shariah principles.
The sizeable Rs10.34 trillion injection underscores the central bank’s commitment to maintaining orderly financial market conditions amid changing liquidity dynamics. It also highlights the rising reliance of the interbank market on SBP’s liquidity facilities as lending demand remains elevated.
Market participants have been closely monitoring the central bank’s liquidity operations as they provide key signals about short-term interest rate direction and funding pressures. The current injection is expected to ease interbank rates and provide breathing room to financial institutions dealing with seasonal liquidity fluctuations and increased government borrowing needs.
Analysts suggest that such large-scale injections help balance liquidity in a manner that stabilizes money market rates, supports credit flow, and ensures smooth settlement of government securities. This, in turn, plays a critical role in preserving financial system resilience, especially when broader macroeconomic adjustments are underway.
The inclusion of both conventional and Shariah-compliant mechanisms within the same operation underlines SBP’s inclusive approach to liquidity management. By supporting Islamic finance institutions alongside conventional banks, the central bank is reinforcing its commitment to a dual banking system.
This development comes at a time when market observers expect further liquidity management operations in the coming weeks as the banking sector navigates fiscal inflows, seasonal demand, and evolving policy adjustments.
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