SBP supplies Rs3.37tr to banks

Pakistan’s central bank has supplied record high financing worth Rs3.37 trillion to banks for a period of seven days to address short-term liquidity crunch in the financial market, as demand for financing from the government stands high at present, bankers told The Express Tribune

The State Bank of Pakistan (SBP) has injected a record high amount of over Rs3 trillion for seven days for the second time on Friday in the past three weeks through its open market operations (OMOs). The amount of Rs3 trillion stands equivalent to 15% of the total deposits in banks at present, according to the central bank data available since March 24, 2008.

“The central bank is indirectly lending to the government through commercial banks,” a banker said while speaking on the condition of anonymity.

The central bank has closed its doors to the government for borrowing directly from it under the International Monetary Fund’s (IMF) conditions for the $6 billion loan programme and through the recent amendments made in central banks rules. Therefore, the central bank is lending to commercial banks and they are further supplying the required financing to the government, he said.

Banks were facing liquidity crisis after having lent a notable amount to the government by buying the government’s shortterm security papers like three to 12-month T-bills, he said.

Sometimes, commercial banks also borrow from the central bank in advance through OMO (injection) keeping in view the outlook for demand of funds from the government, he said.

“The rate of borrowing through OMO (injection) stands low compared to the one at which commercial banks invest their funds in T-bills,” another banker said.

The breakup suggests that the central bank has also injected liquidity worth Rs283.65 billion to Shariah-compliant banks on Friday after quite a long time.

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“This is for the second time that the central bank has injected funds into Islamic banks since the service became available to us since December 2021,” Meezan Bank SEVP and Head of Shariah Compliance Ahmed Ali Siddiqui said.

The Islamic banks faced shortterm liquidity crunch after having lent money to the government by buying Sukuks (Islamic bonds) from the leadership in the recent past, he said.

“Islamic banks have bought Sukuks worth Rs478 billion over the past three months,” he said, adding that they have provided the required funds to the government at a significantly low price compared to commercial banks.

The central bank holds the short-term OMO (injection) operations for one day, three days, seven days day or 21 days almost every week but the size of the injections has been growing rapidly with the passage of time.

The central bank data, available since March 24, 2008, suggests that the central bank made OMO (injection) of over Rs3 trillion for the first time on March 18, 2022. It injected the lofty amount of Rs3.08 trillion in conventional commercial banks on Friday.

Earlier, the large injection operations used to be in the range of Rs1-2 trillion. They were also of amounts much lesser than Rs1 trillion, usually.

The bankers and financial analysts speculated that the commercial banks have been borrowing from the central bank through OMO (injection) at a cheaper rate and investing the amount in short-term papers at a comparatively higher rate. On the other hands, the depositors were being paid a meager return on their deposits.

They said the central bank holds frequently injects funds into the market on short-term basis to avoid financial crisis and to maintain the key policy rate at pre-determined level ie 12.25% at present. If the central bank avoid injecting the money, the policy rate may increase beyond the one decided by monetary policy committee (MPC) of the central bank.