Our govt is a money-inhaling bottomless pit

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The central bank Friday injected Rs 200 billion into the banking system where much of the liquidity is nowadays catering budgetary requirements of the cash-strapped government. With an unprecedented frequency, the State Bank of Pakistan (SBP) is pumping billions into the currency market which is considered to be susceptible to a possible liquidity crunch due to government’s massive borrowings from the commercial banks. Friday saw the central bank injecting Rs 200 billion at an annual rate of return of 11.55 percent. The amount was injected by the SBP through conducting reverse repo open market operations in the Market Treasury Bills and Pakistan Investment Bonds of 7-day maturity. Quotation range for the current injection was 11.60 to 11.55 percent. The economic observers, including the SBP, agree that the State Bank injects money into the market when the market faces a liquidity crunch. SBP’s chief spokesman Syed Wasimuddin confirmed that the injection operations are carried out in times of money scarcity in currency market. The economic observers, however, fear that the present liquidity management would take its toll on the troubled economy in the face of aftereffects. “Over and above, inflation might pop back up as a leading concern during FY13 as an aftereffect of current liquidity and money supply trends,” viewed Farhan Bashir Khan, an analyst at InvestCap.