The State Bank of Pakistan (SBP) kept on injecting the banking system to reduce the widening liquidity supply and demand gap. An amount of Rs 850 billion was pumped into the system on Friday. The SBP on July 31, 2015, conducted its Open Market Operation (injection) and received overwhelming response from banks as they submitted 30 bids amounting to Rs 913.55 billion at a rate ranging from 6.50 percent to 6.60 percent for 7-day (injection).
In response to the quotations, the SBP accepted 29 bids amounting to Rs 850 billion at Rs 6.51 percent rate of return for 7 days. Analysts said since the beginning of this fiscal year banking system is facing liquidity shortage, which could be due to levy of 0.6 percent withholding tax (non-filers) on banking transactions.
"The federal government''s new tax measure to enhance revenue collection has created panic in the market and, reportedly, most of small traders, shopkeepers are reluctant to deposit their funds with banks fearing of 0.6 percent tax deduction on over Rs 50,000 transaction," they added. Traders have announced two countrywide strikes on August 1, (today) and August 5, 2015 to protest against the imposition of 0.6 percent withholding tax, which, on the request of the FPCCI, has been reduced to 0.3 percent for three months.
This is the fifth injection during this month; last week injection was Rs 870 billion. Previously, in the first week of July, the SBP injected Rs 829 billion into the system for one week and later Rs 1.048 trillion were injected for 14 days on July 9, 2015 to reduce the widening liquidity supply and demand gap. Similarly, the State Bank on July 16, 2015 injected Rs 114 billion for 6 days to fulfil the banks'' demand.