March 28, 2025 (MLN): The State Bank of Pakistan (SBP) recently conducted a substantial Open Market Operation (OMO), injecting a total of Rs2.66 trillion into the banking system. This operation, which included both a reverse repo and a Shariah-compliant Modarabah-based OMO, is part of the central bank’s ongoing efforts to address liquidity fluctuations in the financial system.
Out of the total amount injected, Rs2.16 trillion was provided through the reverse repo-based OMO, which is the conventional method for injecting liquidity. The remaining Rs497 billion was injected through the Shariah-compliant Modarabah-based OMO, targeting the Islamic banking sector. This split highlights SBP’s dual approach to managing liquidity across both conventional and Islamic banking systems, ensuring that financial stability is maintained across all sectors of the economy.
In the conventional reverse repo OMO, the SBP offered Rs2.92 trillion, with a total of Rs2.17 trillion being accepted. The accepted amount was facilitated at an interest rate that ranged between 12.10% and 12.22%, with the final accepted rate settling at 12.11%. This reverse repo operation is aimed at injecting funds into the system by lending to banks and Primary Dealers (PDs) against eligible government securities. The securities eligible for such transactions include Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs).
On the other hand, the Shariah-compliant Modarabah-based OMO saw Rs556 billion offered, with Rs497 billion being accepted by eligible Islamic banks. The rate for this transaction ranged between 12.09% and 12.13%, with the final accepted rate also at 12.11%. The Modarabah OMO utilizes GOP Ijara Sukuk as the eligible securities for managing liquidity within the Islamic banking system, ensuring that the operations comply with Islamic finance principles.
Open Market Operations (OMOs) are a vital tool used by the SBP to manage the liquidity levels in the banking system. The operations can either inject liquidity into the system or withdraw excess liquidity, depending on the market’s needs. In the case of OMO injections, the SBP provides funds to banks and Primary Dealers in exchange for government securities, thereby addressing any liquidity shortages in the system.
OMO transactions are critical for maintaining the stability of Pakistan’s financial system, ensuring that liquidity remains adequate to support economic activity while preventing excess liquidity from destabilizing the market. In times of financial strain or uncertainty, the SBP uses OMOs to help banks maintain operational stability and continue lending to businesses and consumers.
For OMO mop-ups, where liquidity is being removed from the market, the SBP sells MTBs to banks, helping to absorb surplus funds and prevent inflationary pressures. Additionally, in the Islamic banking sector, Bai-Muajjal transactions are used as a Shariah-compliant tool to manage liquidity, with GOP Ijara Sukuk being used as eligible securities.
Overall, the OMO results for today reflect the SBP’s ongoing efforts to maintain balance and liquidity in the financial system, using a combination of conventional and Shariah-compliant mechanisms to cater to the diverse needs of Pakistan’s banking sector. The central bank’s strategic use of OMOs helps ensure that Pakistan’s financial markets continue to function smoothly, with both conventional and Islamic banks able to manage liquidity effectively.