On May 9, 2025, the State Bank of Pakistan (SBP) executed a large-scale liquidity injection into the banking system through both conventional and Shariah-compliant Open Market Operations (OMO). The central bank injected a total of Rs13.13 trillion into the financial system, with Rs12.8 trillion injected via conventional reverse repo OMO, and an additional Rs330 billion through Islamic Modarabah-based instruments. The operation is a reflection of SBP’s continued efforts to stabilize liquidity amid evolving financial pressures.
Open Market Operations are critical monetary policy tools used by central banks to regulate short-term interest rates and liquidity in the banking system. In the case of Pakistan, the SBP employs both conventional and Islamic financial instruments to ensure that liquidity needs across all segments of the banking industry are adequately met.
In the conventional OMO segment, the SBP accepted Rs12.8 trillion out of Rs13.07 trillion offered by banks and primary dealers. These funds were injected across two tenors. For the 7-day tenor, Rs390.7 billion were injected at a rate of 11.10%. For the 14-day tenor, a significantly larger amount of Rs12.41 trillion was accepted at a lower rate of 11.03%, despite offers totaling Rs12.68 trillion. This suggests a strategic move by the central bank to provide longer-term liquidity at more competitive rates, reflecting a calibrated approach to market stabilization.
In parallel, the SBP conducted Shariah-compliant operations amounting to Rs330.5 billion under the Modarabah-based OMO framework. The funds were again split between two tenors. The 7-day Islamic OMO saw Rs218 billion accepted at 11.09%, while the 14-day Islamic injection stood at Rs112.5 billion at a rate of 11.10%. These operations are designed specifically to address liquidity needs in the Islamic banking sector, using instruments that comply with Shariah principles such as Bai-Muajjal and Modarabah.
The SBP’s dual-track approach—offering both conventional and Islamic OMOs—demonstrates its commitment to supporting all segments of Pakistan’s diverse financial system. These injections come at a time when markets are under pressure from global economic uncertainty, regional tensions, and persistent structural challenges in the domestic economy.
OMOs allow the central bank to maintain a balance between inflation control and financial stability. In cases where liquidity is tight, the SBP injects funds through the purchase of government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs). Conversely, when the system has excess liquidity, the SBP conducts mop-up operations by selling these securities, thereby absorbing surplus funds from the banking system.
In Islamic banking, where interest-bearing instruments are not permissible, the SBP uses Shariah-compliant securities like GOP Ijara Sukuk. These are utilized through instruments such as Bai-Muajjal and Modarabah to manage liquidity needs while maintaining religious compliance.
Through such operations, the SBP not only ensures that financial institutions have sufficient liquidity to meet their obligations but also maintains control over short-term interest rates, which in turn affects credit availability, investment activity, and overall economic performance.
The latest OMO reflects SBP’s proactive approach in managing market liquidity and financial conditions in a challenging macroeconomic environment. It also reinforces the central bank’s role as a stabilizing force in Pakistan’s financial system by using a diverse set of instruments tailored to the needs of both conventional and Islamic banking sectors.