After a gap of three months, the State Bank of Pakistan (SBP) again conducts a 63-day Open Market Operation (OMO) by injecting Rs. 1.8 trillion at a rate of 13.84 percent. SBP also injected Rs. 1.4 trillion in a 7-day OMO at 13.78 percent.
To recall, SBP last injected Rs. 425 billion at a rate of 9.91 percent on January 7, 2022, for 63 days. Similarly, it also conducted such 63-day OMO injections on December 17, 2022, December 24, 2022, and December 31, 2022, by injecting Rs. 689 billion, Rs. 382 billion and Rs. 274 billion, respectively.
Normally, SBP conducts a short-duration OMO of seven days. This 63-day OMO provides banks liquidity for the longer term that stabilizes rates in the money market, according to a report by Topline Securities.
Essentially, an OMO is a tool used by a Central Bank (or monetary authority) to inject or mop-up funds, based on the liquidity requirements, from the banking system via the purchase or sale of eligible securities. Operationally, in the case of OMO (injections), SBP lends funds to banks against eligible collateral to address the liquidity shortage in the system.
Yields, especially in the shorter tenure, rose sharply due to delays in the International Monetary Fund (IMF) program, huge subsidies on petrol/diesel, and depleting foreign exchange reserves.
Moreover, in 2022, to date, the 6M/12M T-Bill yields were up around 330 basis points (bps) to 14.61 percent and 14.65 percent, respectively, till yesterday. Yields on 3-year and 5-year bonds increased by 200 bps and 130 bps to 13.51 percent and 12.76 percent, respectively.
To recall, SBP, in its last briefing post-Monetary Policy Announcement, stated that it can use various monetary policy tools to bring stability to secondary market yields.
As a result of this development and the announcement of an increase in petrol prices, secondary market yields have started showing a downward trend. According to Topline Securities, yields on shorter tenure instruments 6M/12M T-Bills are down by 20-40 bps to around 14.4 percent, down from a recent high of around 15.1 percent on May 16, 2022.
Similarly, the Pakistan Stock Market and currency market have also reacted positively to the development. PSX is thus far up 1.3 percent or 556 points to the 43,098 index level. Similarly, PKR has appreciated Rs. 2 against USD in the interbank market.