The central bank on Friday kept pumping liquidity into the money market and credited over Rs210.65 billion to the banks who are facing a severe liquidity crunch. Last week on October 14, the central bank had injected a mammoth amount of Rs327.150 billion into the local money market, which the analysts suspect, was part of the cash-strapped government’s covert plan to borrow indirectly from the State Bank.
Direct borrowing from the SBP, the economic observers warn, leads to higher inflation which already is haunting the poverty-stricken masses. Recently, the State Bank of Pakistan (SBP) has started frequent money injections into the rupee-scarce banking system. It was on October 4 when the regulator had pumped Rs40 billion into the currency market. Also, in the second half of September, the central bank had lent over Rs520 billion to the banks. Preceding Fridays had seen the regulator crediting money worth Rs327.150 billion, Rs40 billion, Rs267 billion and Rs254.25 billion to the rupee-starved banks. This Friday was no exception with the central bank injecting a huge sum of Rs210.65 billion, into the currency market at 11.50 per cent against last week’s 11.66 per cent annual rate of return. The interest rate came down head-on to below 12 per cent level after monetary policymaker at the State Bank slashed the discount rate by an unexpected 1.5 per cent (150 basis points) to the pre-2008 12 per cent.
The latest injection of liquidity was carried out by the SBP through its reverse repo open market operations in the Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) with 7-day maturity. Reflecting a big demand for liquidity, the banks came up with a huge buying offer of Rs234.65 billion but the central bank accepted bids worth Rs210.65 billion. Quotation range for the current injection was between 11.90 and 11.28 per cent against 11.95 and 11.61 per cent of last week.
