SBP injects Rs3.22 trillion to banking system through OMO State Bank of Pakistan

SBP injects Rs3.22 trillion to banking system through OMO

KARACHI: The State Bank of Pakistan (SBP) on Friday injected a hefty amount of Rs3.22 trillion to the banking system through 7-day and 63-day Open Market Operation (OMO).

The SBP conducted the 63-day Open Market Operation (OMO) and injected Rs1.8 trillion at a rate of 13.84 per cent. Analysts at Topline Securities said that the SBP conducted the 63-day operation after a gap of three months.

The SBP also injected Rs1.4 trillion in 7-day OMO at 13.78 per cent.

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To recall, SBP last injected Rs425 billion at a rate of 9.91 per cent on January 7, 2022 for 63-days. Similarly, it also conducted such 63 day OMO injections on December 17,2022, December 24, 2022 and December 31,2022 by injecting Rs689 billion, Rs382 billion and Rs274 billion, respectively.

Normally, SBP conducts short duration OMO of 7-days. This 63 days OMO provides banks liquidity for longer term that stabilizes rates in the money market, the analysts said.

OMO is a tool used by a Central Bank (or monetary authority) to inject or mop-up funds, based on the liquidity requirements, from the banking system via the purchase or sale of eligible securities.

Operationally, in case of OMO (Injections), SBP lends funds to banks against eligible collateral to address liquidity shortage in the system.

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Yields specially in the shorter tenure rose sharply due to delay in IMF program, huge subsidy on petrol/diesel, and depleting foreign exchange reserves, the analysts added.

In 2022 to date, 6-month/12-month T-Bill yields were up around 330 basis points to 14.61 per cent to 14.65 per cent till yesterday. Yields on 3-year and 5-year bonds increased by 200 basis points and 130 basis points to 13.51 per cent and 12.76 per cent, respectively.

To recall, SBP in its last analyst briefing post Monetary Policy Announcement stated that it can use various monetary policy tools to bring stability in secondary market yields.

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As a result of this development and announcement of increase in petrol prices, secondary market yields have started showing downward trend. As per our channel checks, yields on shorter tenure instruments 6-month/12-month T-Bills are down by 20-40 basis points to around 14.4 per cent, down from a recent high of around 15.1 per cent on May 16, 2022.

Pakistan Stock Market and currency market has also reacted positively to the development. PSX is thus far up 1.3 per cent or 556 points to 43,098 index level. Similarly, PKR has appreciated by Rs2 against USD in the interbank market.

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