SBP injects over Rs520b in currency markets to check liquidity crunch

The currency market is engulfed with a severe liquidity crunch that forced the central bank injecting over Rs520 billion into the system during a short span of two weeks. It was just last week on Friday when the State Bank of Pakistan (SBP) had injected Rs267 billion into the rupee-scarce banking system with this Friday too witnessing the regulator pumping over Rs254.25 billion into the market.
During the past two weeks, the SBP injected over Rs521.25 billion of liquidity into the currency market through reverse repo open market operations in the Market Treasury Bills (MTBs) and Pakistan Investment Bonds (PIBs) of 7 days’ maturity. In the two operations, the primary dealers came up with exorbitant offers amounting, respectively, to Rs302.500 billion and Rs346.650 billion, with the regulator accepting bids worth Rs267 billion and Rs254.25 billion.
Quotation range for the last and current injection was 13.27 to 13.16 per cent and 13.29 to 13.20 per cent, respectively, said the SBP data. For the current operation, the rate of return has been increased by 4 basis points to 13.26 per cent from 13.22 per cent of the previous week. The economic observers including the central bank agree that the State Bank injects liquidity into the market through its reveres repo operations when the market falls short of money.
According to SBP’s chief spokesman Syed Wasimuddin, “the money is injected when there is a liquidity crunch in the currency market. The commercial banks, which are seeing their bad debts climbing to new highs and the cash-strapped government having embarked on a never-ending borrowing spree to cater its ever increasing budgetary spending, are more likely to have their money blacked.” Analysts believe that the blockade of rupee in the face of Non-Performing Loans (NPLs) that were above Rs500 billion during FY2010-11, and the anti-growth public sector credits, accumulating to Rs2 trillion in the previous year, had left the banking system without money.
The analysts are also concerned over the absence of fresh liquidity that, they believe, comes through public savings and other means due to the persistence of backbreaking and income-eroding inflation.