Cash-in: SBP injects liquidity of Rs513.1b

Analyst says move aimed at addressing cash shortage.

KARACHI: The State Bank of Pakistan (SBP) injected liquidity of as much as Rs513.1 billion into the banking system on Friday.

Speaking to The Express Tribune, BMA Capital Management Research Analyst Jehanzaib Zafar said the massive cash injection was aimed at addressing the liquidity shortage problem that has affected the banking system in recent months.

According to data released by SBP’s Domestic Markets and Monetary Management Department, the central bank conducted an open market operation (injection) that resulted in an accepted amount of Rs513.1 billion.

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

This was the first open market operation (injection) of the SBP in 2015. The last open market operation took place on December 26 when the central bank injected liquidity of Rs586.4 billion into the banking system.



The SBP conducted six liquidity injection operations last month 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.

“Banks have invested heavily in Pakistan Investment Bonds (PIBs), which has sucked liquidity out of the system,” said Zafar, adding that their exposure to PIBs is now over Rs3 trillion.

The inflation-adjusted interest rate in the economy had widened in the wake of a falling Consumer Price Index (CPI). This prompted banks to expect a cut in the discount rate by the central bank.

Consequently, most banks locked in their investments in long-term government papers before the last monetary policy announcement on November 15.



The CPI averaged 7.2% in 2014 as opposed to 7.6% year-on-year because of lower commodity prices and a high-base effect. According to Topline Securities, inflation will remain in the range of 6% and 6.5% in 2014-15.

In view of the declining rate of inflation, most brokerage houses expect the discount rate to go down further from 9.5% in the upcoming monetary policy announcement in the current month.

Meanwhile, the SBP said it will hold auctions for Pakistan Investment Bonds (PIBs) and market treasury bills (MTBs) of different maturities amounting to a total of Rs975 billion in the first quarter of 2015.

According to the auction calendar, the government will raise Rs825 billion via six MTB auctions in January-March. Two auctions will take place in January, February and March each.

The MTB target for each auction ranges from a maximum of Rs225 billion (to be held in January) to a minimum of Rs50 billion (to be held in February).

The government aims to borrow a total of Rs150 billion in January-March through PIBs of three, five, 10 and 20 years of maturity. The target for the three auctions -- to be held in January, February and March – is Rs50 billion each.

Published in The Express Tribune, January 3^rd, 2015.

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