KARACHI: In the third consecutive open market operation (OMO) in as many weeks, the State Bank of Pakistan (SBP) on Friday injected cash into the money market for an unusual 63-day period.
The SBP provided banks with Rs604 billion liquidity against the offered amount of Rs963bn. It injected Rs330bn at 9.87 per cent for seven days in addition to providing Rs274bn at 9.88pc for 63 days through the OMO, a tool that the central bank uses to regulate the short-term cost of money by trading government debt securities with commercial banks.
The latest OMO follows the two OMOs held on Dec 24 and Dec 17 in which the SBP lent banks a total of Rs2.85 trillion for seven- and 63-day tenors. The move is aimed at bringing down the yields on treasury bills that have risen despite the SBP’s forward guidance suggesting no change in the benchmark interest rate in the immediate term.
“The objective is to minimise the banks’ repricing risk. Their cost of funds is fixed for the next two months, which should encourage them to bid for treasury bills at lower rates in the coming auctions,” said Ismail Iqbal, Securities Head of Research Fahad Rauf, while speaking to Dawn.
Although banks were provided with ample liquidity ahead of the last auction of treasury bills on Dec 29, the cut-off yield on the three-month paper came down by only 19 basis points from the preceding auction — a drop that was smaller than what most money market analysts expected.
While the SBP never states categorically that it’s injecting cash into the money market to boost banks’ participation in government debt auctions, it’s the implicit objective of the OMOs of unusually longer tenors. “It’s true that the yields didn’t record big declines in the last auction. One reason was the sharp increase in the international oil price, which made banks concerned about a rise in the import bill and its effects on the exchange and interest rates,” said Mr Rauf.
Cash that banks received through the latest OMO of 63 days will remain available with them for the next two months at a fixed cost. This means they’ll have the liquidity to actively take part in the treasury bill auctions scheduled for Jan 12, Jan 26, Feb 9 and Feb 23 at relatively lower rates, he said.
Published in Dawn, January 1st, 2022
Dear visitor, the comments section is undergoing an overhaul and will return soon.