SBP allows DFIs to participate in OMO

KARACHI: The State Bank of Pakistan (SBP) on Tuesday has allowed the development finance institutions (DFIs) to participate in open market operations (OMOs) in a bid to address their liquidity issues.

“It has been decided to allow Development Finance Institutions (DFIs) to participate in OMOs with a view to facilitating them in their liquidity management,” the central bank said, referring to DMMD Circular No. 12 of 2017 in terms of which all schedule banks and primary dealers are allowed to participate in OMOs.

“Accordingly, DFIs would also be eligible to participate in OMOs as per instructions and procedure for OMOs stipulated in master circular.”

The central bank said that all other instructions on the subject will remain unchanged.

The DFIs would now be eligible to invest in the government securities such as Market Treasury Bills and Pakistan Investment Bonds. Presently, conventional banks and Islamic banking institutions participate in the OMOs.

As part of its monetary policy implementation, the SBP conducts OMOs to keep the money market overnight repo rate close to the SBP target policy rate introduced under the revised Interest Rate Corridor Framework in 2015.

Analysts said the SBP’s decision to allow DFIs to participate in OMOs may help stabilise rates in the money market.

The SBP is frequently injecting liquidity into the money market by conducting short and long-duration OMOs to bring down secondary market rates.

The SBP provided banks with total liquidity of Rs1.475 trillion where Rs692.2 billion was accepted for seven days at 13.79 percent, while the remaining Rs783.3 billion at 13.83 percent for 63 days, the SBP’s OMO result showed. The SBP also conducted Shariah-compliant Mudarabah-based OMO, pumping a total of Rs595.7 billion in liquidity into the Islamic banking institutions. It injected Rs301 billion funds into the Islamic banks for seven days at 13.81 percent. The central bank provided them with the liquidity of Rs295 billion for 63 days at 13.87 percent.

The yields on the short and long-dated T-bill jumped to 15 percent in the last auction held on Wednesday as investors feared that surging inflation could compel the central bank to hike interest rates further in the coming months.