The State Bank of Pakistan (SBP) conducted significant Open Market Operations (OMO) on January 2, 2025, injecting a total of Rs823.45 billion into the financial system. The liquidity infusion was carried out through two mechanisms: a conventional reverse repo OMO and a Shariah-compliant Modarabah-based OMO. This move highlights the SBP’s proactive approach to addressing liquidity needs in the banking sector.
In the conventional OMO, the SBP injected Rs627.9 billion through an eight-day reverse repo transaction. The accepted rate for this operation ranged from 13.09% to 13.06%, with the final rate settling at 13.06%. The operation saw full acceptance of the offered amount, providing substantial liquidity to address immediate market requirements.
Simultaneously, the SBP conducted a Shariah-compliant Modarabah-based OMO to inject Rs195.5 billion into the Islamic banking system. This seven-day reverse repo transaction was executed at rates ranging between 13.12% and 13.10%, with the final accepted rate set at 13.10%. Like the conventional OMO, the Shariah-compliant operation also witnessed full acceptance of the offered amount, reflecting robust demand for liquidity within the Islamic banking sector.
Understanding the SBP’s Open Market Operations
Open Market Operations are a critical monetary policy tool used by the SBP to manage liquidity in the banking system. Through these operations, the central bank either injects funds to address liquidity shortages or mops up excess liquidity to maintain financial stability.
In the case of OMO injections, the SBP lends funds to banks and Primary Dealers (PDs) against eligible collateral, which typically includes government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs). These operations help stabilize short-term interest rates and ensure sufficient liquidity to meet the operational needs of the banking sector.
For Shariah-compliant injections, the SBP uses tools like Bai-Muajjal, which involve lending funds against GOP Ijara Sukuk. These transactions cater specifically to Islamic banks and the Islamic windows of conventional banks, ensuring that liquidity management aligns with Shariah principles.
Conversely, OMO mop-ups are conducted when there is surplus liquidity in the banking system. In such cases, the SBP sells MTBs to banks, either on a repo or outright basis, to withdraw excess funds and maintain monetary stability.
Implications of the Liquidity Injection
The Rs823.45 billion liquidity injection demonstrates the SBP’s commitment to ensuring smooth operations in both conventional and Islamic banking systems. By addressing liquidity shortages, the central bank aims to stabilize market interest rates and support the financial system’s functioning.
This dual approach also reflects the growing importance of Islamic banking in Pakistan’s financial landscape. The inclusion of Shariah-compliant tools like Bai-Muajjal underscores the SBP’s efforts to provide equitable support across different banking models.
As banks and financial institutions leverage this liquidity to meet their operational and lending needs, the broader economy stands to benefit from improved credit availability. This, in turn, can stimulate economic activity and support sectors reliant on financing.
Through these measures, the SBP continues to play a pivotal role in maintaining monetary stability and fostering a resilient financial system, positioning Pakistan’s banking sector to meet evolving economic challenges effectively.