In a significant move to stabilize liquidity conditions in the banking sector, the State Bank of Pakistan (SBP) has conducted an extensive open market operation (OMO), injecting a total of Rs1.16 trillion into the financial system. The liquidity was supplied through a blend of conventional reverse repo agreements and Shariah-compliant Modarabah-based instruments, reflecting the central bank’s strategy to cater to both traditional and Islamic banking segments.
According to official data released by the SBP, a substantial portion of the injection, amounting to Rs805 billion, was carried out through conventional reverse repo OMOs. Under this mechanism, the central bank lends funds to banks and primary dealers against eligible collateral, primarily comprising Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs). The accepted bids for this operation carried rates ranging between 11.15 and 11.07 percent, with the final accepted rate settling at 11.07 percent for a tenor of two days.
Simultaneously, to address liquidity requirements within the Islamic banking landscape, the SBP injected another Rs358 billion through a Shariah-compliant Modarabah-based OMO. This operation, also conducted over a two-day tenor, was executed at rates varying from 11.19 to 11.16 percent, closing at an accepted rate of 11.16 percent. For such Islamic liquidity facilities, Government of Pakistan Ijara Sukuk serve as the underlying eligible securities.
Open market operations serve as a critical tool for the SBP to manage liquidity in the banking system. When the market experiences a liquidity shortfall, the central bank injects funds by lending against government securities, thus helping banks maintain their short-term cash flow needs. Conversely, when there is excess liquidity, the SBP conducts mop-ups by selling securities to absorb surplus funds, thereby steering short-term interest rates and supporting overall monetary stability.
This large-scale liquidity injection underscores the SBP’s ongoing efforts to ensure smooth functioning of the money markets and to maintain stability in short-term interest rates. With banking sector needs evolving amid broader economic pressures, such proactive measures are vital to safeguard the operational health of financial institutions, enabling them to continue financing the real economy.
The dual nature of this OMO—covering both conventional and Islamic instruments—highlights the SBP’s inclusive approach to liquidity management. Islamic banks and the specialized Islamic banking windows of conventional banks were active participants in the Shariah-compliant side of this operation, ensuring that liquidity needs across the spectrum of Pakistan’s diverse banking sector were effectively addressed.
By deploying these injections, the SBP aims not only to alleviate immediate liquidity stresses but also to reinforce confidence in the banking system. Market participants view such operations as essential in preventing short-term funding strains, which can ripple through the broader financial ecosystem if left unchecked.
Overall, this development reflects the State Bank of Pakistan’s active engagement with evolving market conditions, balancing the dual objectives of monetary policy implementation and financial system stability. As economic dynamics continue to shift, the central bank’s calibrated use of OMOs will remain central to maintaining orderly money markets and supporting Pakistan’s broader economic goals.