The State Bank of Pakistan carried out a significant liquidity operation as part of its ongoing efforts to stabilize short-term funding conditions in the banking system. Through a combined open market operation involving both conventional and Shariah-compliant modes, the central bank injected a total of Rs645.1 billion into the market. The operation illustrates the central bank’s continued use of targeted liquidity tools to respond to immediate funding requirements and ensure smooth functioning of the interbank market.
A major portion of the liquidity, amounting to Rs512.6 billion, was provided through a conventional reverse repo injection. The one-day tenor operation was conducted at an accepted rate of 11.10 percent, with all offered quotes being matched by the central bank. The reverse repo window allows banks facing short-term liquidity shortages to borrow funds from the central bank against eligible government securities, thereby stabilizing settlement flows and meeting mandatory reserve obligations. The participation levels reflected the banking sector’s need for short-term liquidity support amid an environment of tight market conditions.
Alongside the conventional operation, the State Bank also executed a Shariah-compliant Modarabah-based open market operation, facilitating an additional injection of Rs132.5 billion. For this Islamic liquidity window, the accepted rate stood at 11.08 percent for the one-day tenor. The facility was designed for institutions operating under Islamic banking or Shariah-compliant business models, enabling them to access liquidity in a manner aligned with Islamic financial principles. Out of the total Rs146.5 billion offered, Rs132.5 billion was accepted, demonstrating healthy participation from Islamic banks and conventional banks with dedicated Islamic windows.
Both operations highlight the State Bank’s commitment to maintaining liquidity balance in the financial system using a combination of conventional and Shariah-based tools. These operations are essential in managing short-term liquidity pressures, ensuring the smooth functioning of payment systems, and supporting interbank market stability. By deploying targeted injections, the central bank can temporarily close funding gaps without altering broader monetary policy stances.
The central bank also reiterated the purpose and framework of open market operations. For liquidity injections, SBP lends funds to counterparties including banks and primary dealers against marketable government securities such as Market Treasury Bills and Pakistan Investment Bonds. These instruments act as collateral, offering the central bank a secure mechanism to provide short-term funds while managing system-wide liquidity. In contrast, during mop-up operations, the central bank sells government securities to absorb excess liquidity from the market. These liquidity adjustments are part of routine operations to maintain stability and ensure the banking system functions efficiently.
For the Islamic banking sector, liquidity management is facilitated through Shariah-compliant structures such as Bai-Muajjal and Modarabah-based OMOs, where instruments like Government of Pakistan Ijara Sukuk are used as eligible collateral. These structures ensure compliance with Islamic principles while enabling effective liquidity support for institutions operating under Shariah frameworks.
The latest operation reflects the State Bank’s continued focus on balancing liquidity to support economic activity, maintain orderly market conditions, and uphold the operational stability of both conventional and Islamic banks. As funding needs fluctuate, such operations remain vital to preventing disruptions in the interbank market and supporting broader financial stability.
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