KARACHI:
On Friday, SBP injected a staggering Rs1.72 trillion into the banking system through both conventional and Shariah-compliant open market operations (OMOs). While this move may appear to be a pragmatic response to short-term liquidity pressures, it also raises important questions about the structural health of Pakistan’s financial system and the underlying causes of persistent liquidity shortages.
From a technical standpoint, the dual-mode liquidity injection — spanning both conventional and Islamic banking systems — demonstrates the SBP’s commitment to inclusivity and financial parity. It recognises the growing importance of Shariah-compliant instruments in the country’s banking sector, which continues to expand as more institutions and customers seek ethical finance alternatives.
However, the sheer magnitude of the injection — Rs1.72 trillion — signals more than just a seasonal liquidity crunch. It points to systemic imbalances that require deeper scrutiny. High government borrowing, weak private sector credit demand and ongoing fiscal deficits continue to strain the banking system. In such an environment, OMOs risk becoming more of a recurring firefighting tool rather than a strategic monetary lever.
Moreover, persistent liquidity support can dull market discipline, especially if banks come to rely on central bank interventions instead of prudent asset-liability management. There is also the broader macroeconomic context to consider: inflation remains high, and the rupee under pressure. Injecting such massive liquidity could undermine monetary tightening efforts, especially if not carefully sterilized.
That said, one cannot ignore the necessity of the SBP’s move. In the face of mounting debt servicing needs, delayed fiscal reforms, and uncertain external financing, the central bank must ensure that financial institutions remain functional and credit markets stable. A sudden liquidity freeze could trigger panic, jeopardising both banking confidence and economic activity.
So, while the SBP’s Rs1.72 trillion liquidity injection may be necessary to address immediate banking sector needs, it also serves as a reminder of the deeper, unresolved economic issues.
Rukaiya Ashraf Abbasi
Karachi
