Liquidity shortage: SBP injects another Rs689.1b

Latest OMO follows that of last week’s when central bank injected Rs513.1b.

KARACHI: The State Bank of Pakistan (SBP) injected liquidity of Rs689.1 billion into the banking system on Friday.

The banking system has been facing liquidity shortages because banks have invested heavily in long-term government papers as they expect the SBP to slash the key interest rate in the upcoming monetary policy announcement.

According to data released by the SBP’s Domestic Markets and Monetary Management Department, the central bank conducted an open market operation (injection) that resulted in an accepted amount of Rs689.1 billion.

The tenor of the latest open market operation is 10 days, with the accepted rate of return clocking up at 9.3% per annum.

The latest injection follows the first open market operation of 2015 that injected Rs513.1 billion on January 2. Statistics show the banking system is increasingly faced with liquidity issues.

The SBP conducted six liquidity injection operations in December that provided the banking sector with a cumulative liquidity of Rs2.1 trillion. In contrast, the cumulative liquidity injection in the same month of 2013 was only Rs241.1 billion.

It should be noted that the liquidity-injecting open market operations have gathered pace with the commencement of 2014-15. SBP data shows the interbank market had excess liquidity for most part of 2013-14, which resulted in the SBP actually mopping up Rs2.4 trillion from the interbank market in July-March of the last fiscal year. This amount was almost 17 times greater than the mopped-up excess liquidity in the same period of 2012-13.

Published in The Express Tribune, January 10^th, 2015.

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