SBP injects Rs12.5 trillion into banks to maintain liquidity

KARACHI: The State Bank of Pakistan (SBP) on Friday injected Rs12.5 trillion into the financial system through its routine Open Market Operations (OMOs) to manage liquidity in the banking system.

According to data released by the central bank, most of the funds, about Rs12.2 trillion, were provided through conventional reverse repo-based OMOs, while another Rs322.5 billion were injected through Shariah-compliant Modarabah-based OMOs.

Details of the injection

The SBP accepted bids worth Rs11 trillion under a seven-day tenor reverse repo at an accepted rate of 11.01 percent, while another Rs1.2 trillion were injected under a 14-day tenor at 11.03 percent.

In the Islamic banking segment, the central bank provided Rs322.5 billion under a seven-day Modarabah-based OMO at an accepted rate of 11.06 percent. No bids were received for the 14-day tenor in this category.

Officials said the step was part of SBP’s regular liquidity management operations, aimed at ensuring smooth functioning of the interbank market.

Why OMOs matter

Open Market Operations are a key tool the SBP uses to manage day-to-day liquidity in the banking system. Injections are carried out when there is a need to provide short-term funds, while mop-ups are done when there is excess liquidity in the market.

Injections work like short-term lending by the central bank to commercial banks, using government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) as collateral. For Islamic banks, government-issued Ijara Sukuk are used under Shariah-compliant modes like Bai-Muajjal or Modarabah.

By managing liquidity through OMOs, the SBP aims to keep overnight interbank rates close to the policy rate, which helps maintain overall monetary stability.

Market context

Analysts noted that such large-scale injections are not unusual and are part of the central bank’s ongoing efforts to keep liquidity conditions stable. These operations often take place near the end of the week or quarter when banks have to meet payment and reserve requirements.

Market participants will now watch how long the injected funds remain in the system and whether the SBP opts for mop-up operations in the coming days if liquidity conditions change.