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The State Bank of Pakistan (SBP) has injected Rs3.169 trillion worth of liquidity into the money market via an open market operation (OMO) for a seven-day period at 12.29%, it said on Friday.

A day ago, the SBP injected Rs163.5 billion into the market for 1 day at 12.28%.

“This is a regular central bank operation, which is undertaken to meet the government funding needs,” said Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, while talking to Business Recorder.

The expert explained that since being part of the International Monetary Fund (IMF) programme, for a $6 billion Extended Fund Facility (EFF), the government cannot borrow directly from the SBP. Thus, the central bank injects this liquidity into commercial banks, which use these funds to purchase government securities.

Rauf said that the regular OMO operations come as the government is unable to attain funds from its international lenders to meet it funding needs. “Funding from the International Monetary Fund (IMF) and other bilateral institutions has dried up, pushing the central bank towards frequent OMOs,” he said.

“OMO is a tool of SBP for liquidity management,” said Sana Tawfik, vice-president research and a senior analyst at Arif Habib Limited (AHL). She added that the frequent injection is because the commercial banks are short of liquidity.

She added that the latest injection shows that the government is facing a fund shortage to meet its fiscal needs.

Meanwhile, Pakistan’s foreign exchange reserves have been on a declining run for quite some time now, and recorded a further decrease of $449 million during last week due to external debt servicing.

SBP’s reserves slip below $11bn

According to SBP, the total liquid foreign exchange reserves held by the country stood at $17.03 billion as of April 8, 2022 down from $17.48 billion on April 1, 2022.

During the week under review, the SBP’s reserves decreased by $ 470 million, ie, from $11.319 billion to $ 10.849 billion, mainly due to external debt repayments. The current level of foreign exchange reserves is lowest since June 2020 and the current level can cover imports of less than two months.

Net forex reserves held by commercial banks increased by $21 million to $6.178 billion.

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