April 17, 2025 (MLN): The State Bank of Pakistan (SBP) on Thursday carried out a conventional Open Market Operation (OMO), injecting a total of Rs661.8 billion into the financial system in response to liquidity demands. The OMO was conducted using the reverse repo mechanism for a tenor of 15 days.
According to official data released by the SBP, the entire amount of Rs661.8 billion offered was accepted, with the injection taking place at a rate of 12.03%. The bids received ranged between 12.11% and 12.03%, but ultimately settled at the lower bound of 12.03%. A total of 14 quotes were offered and accepted for this transaction.
This OMO was conducted through the conventional reverse repo method, which allows the central bank to provide liquidity to commercial banks and primary dealers (PDs) by lending money against government-backed securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs).
Meanwhile, no bids were received for the Shariah-compliant Modarabah-based OMO. The absence of participation in the Islamic segment indicates a possible lack of demand or misalignment in pricing expectations within the Islamic banking window at this point in time.
Reverse repo-based OMOs are standard monetary policy tools utilized by the SBP to manage short-term liquidity within the banking system. These operations play a pivotal role in maintaining interest rate stability and ensuring smooth functioning of money markets. By injecting funds, the SBP aims to mitigate temporary liquidity shortages faced by commercial banks and prevent volatility in overnight money market rates.
In contrast, when there is excess liquidity in the market, the central bank can use OMO (Mop-up) operations to absorb the surplus funds. These are typically executed by selling marketable government securities such as MTBs on a repo or outright basis, pulling money out of circulation and helping tighten liquidity conditions.
For Islamic banking institutions, the SBP offers Shariah-compliant liquidity management instruments, including Modarabah-based OMOs and Bai-Muajjal transactions. In such operations, Government of Pakistan Ijara Sukuk serve as the eligible collateral. However, today’s auction for the Modarabah-based OMO did not attract any offers from Islamic financial institutions, which may reflect current positioning or strategy within the Islamic finance segment.
OMO operations are a critical part of the SBP’s toolkit for conducting monetary policy and ensuring market stability. They are particularly significant during periods of fiscal pressure or economic transition, offering the regulator flexibility to fine-tune liquidity without changing broader policy rates.
Today’s sizable injection of over Rs661 billion highlights the central bank’s active role in addressing short-term liquidity mismatches and signals its commitment to stabilizing financial markets amid evolving macroeconomic conditions.
As Pakistan navigates complex economic challenges, tools like OMOs will continue to play a vital role in the broader strategy of maintaining financial system stability, especially as both conventional and Islamic banking sectors expand in scope and complexity.