KARACHI: The State Bank of Pakistan (SBP) has injected over Rs242 billion into the money market as banks are facing liquidity shortage due to investment in the government securities.
The central bank on Friday injected Rs242.45 billion in the banking system against offered amount worth Rs274.05 billion in a reverse repo open market operation in the government of Pakistan Market Treasury Bills and Pakistan Investment Bonds for seven days at 11.58 percent annual rate of return.
Banking experts said that the SBP was injecting huge funds to ensure sufficient liquidity with banks which is drying up after heavy exposure in government papers. In the recent treasury bills auction the SBP sold maturities worth Rs101.73 billion. The banks had offered Rs175.23 billion bids for the auction.
Analysts said that heavy participation in government papers is also banks priority due to risk-free investment. “Since the central bank is continuously injecting the money into the system therefore banks have maintained a strong appetite for investing in the government papers,” an analyst said.
The SBP itself criticised the frequent injection but it had no other choice because this would help averting government borrowing from the central bank. The SBP in its last monetary policy pointed out the significant injections and said that it was difficult situation for the central bank.
“In this context where government is the main user of the system’s liquidity and banks remain hesitant to extend credit to the private sector, SBP faces a dilemma,” it said. “Efforts to scale down liquidity injections could have implications for settlement of payments in the interbank market, which is an important consideration given SBP’s mandate of maintaining financial stability,” it added.
“Even if these considerations are addressed, the government may end up settling its obligations by borrowing from SBP. This does not bode well for government’s own commitment of keeping such borrowings at zero on quarterly basis,” according to the last monetary policy statement.