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KARACHI: The State Bank of Pakistan (SBP) has allowed the Development Finance Institutions (DFIs) to participate in the Open Market Operations (OMOs) to manage their liquidity.

With this measure, DFIs can invest excess liquidity and borrow the amount from the State Bank of Pakistan.

OMOs - a monetary policy tool used by the SBP to inject or mop up funds based on the liquidity requirements, from the banking system via the purchase or sale of eligible securities.

In case of OMO injections, the SBP lends funds to banks or primary dealers against eligible collateral to address liquidity shortage in the system. In OMO mop up, the SBP sells MTBs to banks against funds to remove surplus liquidity from the system.

Previously, only banks and primary dealers were allowed to participate in OMOs and DFI were not eligible for OMOs.

On Tuesday, the State Bank amended its previous instructions, in terms of which all scheduled banks and primary dealers are allowed to participate in OMOs besides allowing DFIs to participate in OMOs.

“Now, the SBP has decided to allow Development Finance Institutions to participate in OMOs with a view to facilitating them in their liquidity management,” said a circular issued on Tuesday.

Accordingly, DFIs would also be eligible to participate in OMOs as per instructions and procedure for OMOs as per term and conditions of SBP announced in the master circular of OMOs issued in July 2017.

With fresh directives banks, PDs and DFIs are eligible counterparties to OMO transactions. For Bai Muajjal transactions, Islamic banks and specialized Islamic windows of conventional banks are eligible counterparties.

Industry sources said that this move will help the DFIs to borrow from the SBP to meet their financing requirement or park their excess liquidity for a short term period.

As per the SBP directives, Government of Pakistan Market Treasury Bills, Pakistan Investment Bonds and any other security notified by SBP are the eligible securities for OMOs. The SBP announces OMOs as and when required by the market conditions.

An eligible participant can submit up to three bids in a single OMO tenor. The minimum bid amount will be Rs100 million and multiples of Rs50 million thereof. There is no restriction on the SBP in terms of tenor of conventional OMOs. However, usually the SBP conducts OMOs of shorter tenors (eg, 7 to 14 days).

Copyright Business Recorder, 2022

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