The State Bank of Pakistan (SBP) has injected a whopping amount of Rs. 3.37 trillion into the banking system for seven days through its open market operations (OMOs) to address a short-term liquidity crunch in the financial market.
The amount of Rs. 3 trillion stands equivalent to 15 percent of the total deposits in banks at present, according to the central bank data available since March 24, 2008. Earlier, the large injection operations used to be in the range of Rs. 1-2 trillion.
According to the bankers, the banking regulator is indirectly lending to the government through commercial banks.
SBP has closed its doors to the government for borrowing directly from it under the International Monetary Fund’s (IMF) conditions for the $6 billion loan program and through the recent amendments made to central banks rules. Therefore, the central bank is lending to commercial banks, and they are further supplying the required financing to the government.
The bankers and financial analysts speculated that the commercial banks have been borrowing from the central bank through OMO (injection) at a cheaper rate and investing the amount in short-term papers at a comparatively higher rate. On the other hand, the depositors were being paid a meager return on their deposits.
They said the central bank frequently injects funds into the market on a short-term basis to avoid financial crises and maintain the key policy rate at a pre-determined level, i.e., 12.25 percent at present. If the banking regulator avoids injecting the money, the policy rate may increase beyond the one decided by the monetary policy committee (MPC) of the SBP.
According to the bankers ? Which bankers? Any viable source of this information?