The State Bank of Pakistan (SBP) resumes a 63-day Open Market Operation (OMO) after a three-month hiatus, infusing Rs. 1.8 trillion at a rate of 13.84 percent. In addition, the SBP injected Rs. 1.4 trillion in a seven-day OMO at a rate of 13.78 percent
SBP last injected Rs. 425 billion at a rate of 9.91 percent for 63 days on January 7, 2022. On December 17, 2022, December 24, 2022, and December 31, 2022, it performed similar 63-day OMO injections, injecting Rs. 689 billion, Rs. 382 billion, and Rs. 274 billion, respectively.
Normally, SBP performs a seven-day short-duration OMO. According to Topline Securities, this 63-day OMO offers banks longer-term liquidity, which helps to stabilize money market rates.
An OMO is a mechanism used by a Central Bank (or monetary authority) to inject or mop-up cash from the banking system depending on liquidity needs via the purchase or sale of qualified assets. In the case of OMO (injections), the SBP loans cash to banks against suitable collateral in order to solve the system’s liquidity constraint.
Due to delays in the International Monetary Fund (IMF) programme, significant subsidies on gasoline/diesel, and diminishing foreign currency reserves, yields spiked, particularly in the shorter term.
Furthermore, until yesterday, the 6M/12M T-Bill rates in 2022 had risen roughly 330 basis points (bps) to 14.61 percent and 14.65 percent, respectively. The yields on 3-year and 5-year bonds jumped by 200 basis points and 130 basis points, respectively, to 13.51 percent and 12.76 percent.