The State Bank of Pakistan (SBP) conducted an Open Market Operation (OMO) on Monday, injecting a total of Rs1.75 trillion into the banking system to address liquidity needs. The intervention included Rs1.45 trillion through conventional reverse repo OMO, while an additional Rs305 billion was provided via Shariah-compliant Modarabah-based OMO.
OMO is a key monetary policy tool used by the central bank to regulate liquidity in the financial system. Through this mechanism, SBP either injects funds to ease liquidity constraints or mops up excess liquidity to stabilise monetary conditions. The latest injection suggests an effort to maintain banking sector stability amid ongoing economic challenges.
In the conventional reverse repo operation, the SBP accepted Rs1.45 trillion for a seven-day tenor at a rate of 12.07%. No funds were injected for the 28-day tenor. Meanwhile, in the Shariah-compliant Modarabah-based OMO, the central bank injected Rs305 billion, also for a seven-day tenor, at a rate of 12.09%.
OMO transactions play a crucial role in Pakistan’s banking system by ensuring sufficient liquidity for financial institutions while preventing excessive money supply that could drive inflation.
In an OMO Injection, the SBP provides liquidity to banks by lending against eligible collateral, which includes government securities such as Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs).
Conversely, in an OMO Mop-up, the SBP withdraws excess liquidity by selling MTBs to banks, reducing the money supply in the system.
By balancing liquidity, SBP aims to stabilise short-term interest rates and maintain monetary control in line with broader economic objectives. This significant liquidity injection comes at a time when financial markets are navigating macroeconomic uncertainties, reflecting the central bank’s proactive stance in managing monetary conditions.
