SBP announces 74-day OMO injection, rejects all bids

OMO bid rejection may be seen as signal for hike in policy rate in MPC meeting scheduled for July 7

KARACHI: The State Bank of Pakistan (SBP) conducted a 74-day Open Market Operation (OMO) injection through Reverse Repo Purchase earlier today. This OMO is important as it may be seen as a signal for a hike in the policy rate especially with the Monetary Policy Committee (MPC) meeting scheduled for July 7, 2022.

Twenty-eight bids that were placed by participants ranging between 13.97 percent to 13.84 percent to raise PKR 1.91 trillion were rejected by the SBP.

According to a senior  banker, “Usually when longer OMOs are introduced, it is to address rising yields, but also to provide a signal that the policy rate is likely to remain unchanged. However, taking back or shelving today’s OMO may be a hint to the markets to expect a rate hike.” 

The source adds, “The SBP seems confused. They’re making an injection today, while they conducted a mop-up last week.” Earlier last week, on Thursday, the SBP conducted a four-day OMO to mop up liquidity. It picked up PKR 392.6 billion at a rate of return of 13.65 percent per annum. 

On June 24, the SBP announced a 77-day OMO injection into the interbank, this is the longest OMO tenor till date. PKR 402 billion was injected through this OMO expected to mature on September 9, 2022. The SBP has already locked-in 94 percent of outstanding OMOs worth PKR 4.1 trillion in 63-day tenors.

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Ariba Shahid
The author is a business journalist at Profit. She can be reached at [email protected] or at twitter.com/AribaShahid

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