SBP injects Rs. 576 billion into the banking system to address market liquidity needs
The State Bank of Pakistan (SBP) injected Rs575.8 billion into the banking system through an open market operation (OMO) reverse repo purchase on Thursday. This move, part of the central bank’s routine liquidity management measures, aims to address short-term liquidity requirements in the inter-bank market.
The OMO was conducted for an eight-day tenor, with bids offered at rates ranging from 13.07% to 13.10%. The SBP accepted the entire amount at a return of 13.07%. “This reflects the central bank’s ongoing efforts to ensure adequate liquidity in the financial system,” said Maaz Azam, Head of Research at Optimus Capital Management.
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A sharp rise in private sector borrowing has been observed in recent months, coinciding with increased government pressure on banks to extend credit. Weekly credit to the private sector, which hovered around Rs8,500 billion for most of 2024, surged to Rs10,500 billion by December 22.
The advance-to-deposit ratio (ADR) in the banking sector improved significantly, rising from 38.4% in August to 49.7% by December 6, 2024. This reflects a 27.6% increase in advances against a 1.6% decline in deposits during the same period, according to Tahir Abbas, Director of Equities at AHL.
Despite the increase in private sector credit, there are concerns about banks channeling funds into government bonds instead of supporting private sector growth. Yields on three-year bonds showed a slight decline, from 12.50% on December 24 to 12.49% on December 26.
The SBP’s liquidity injections fluctuated throughout the year, peaking at Rs13 trillion in August before stabilizing near Rs11 trillion by December. These efforts underscore the central bank’s active role in balancing market liquidity and interest rates to foster economic activity.
Pakistan’s total liquid foreign reserves stood at $16,371.5 million as of December 20, 2024. The SBP’s reserves were recorded at $11,853.5 million, while commercial banks held $4,518 million. However, the SBP’s reserves declined by $228 million during the week, primarily due to external debt repayments.
The Pakistani rupee showed slight improvement against the US dollar, appreciating by 0.04% in the inter-bank market. By the end of Thursday’s session, the rupee closed at 278.37, gaining 10 paisa against the greenback.
Gold prices in Pakistan increased on Thursday, following international trends. The price of gold per tola rose by Rs1,400, reaching Rs274,000, according to the All Pakistan Gems and Jewellers Sarafa Association (APGJSA). This increase mirrored a global rise in gold prices, where rates stood at $2,628 per ounce, including a $20 premium.
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