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State Bank of Pakistan provides Rs1.5 trillion to banks

Islamabad: Pakistan central bank has injected Rs1.502 trillion into commercial and Shariah-compliant banks for seven to 63 days to help them meet higher demand for liquidity from the government at a stable rate of return.

Data breakdown suggests the central bank injected Rs595.25 billion into commercial banks at a return of 15.18% through a seven-day open market operation (OMO).

It provided another Rs825 billion to banks at a rate of return of 15.18% through a 63-day OMO.

The State Bank of Pakistan (SBP) lent Rs82.30 billion to Shariah-compliant banks at returns ranging from 15.18% to 15.20% through seven to 63-day OMOs.

Arif Habib Limited economist Sana Tawfik said “the objective of providing liquidity for a longer tenure (63 days) is to stabilise the return at which banks are providing financing to the government, which is scheduled to acquire (huge) new debt to repay the previous one.”

The government has targeted to borrow Rs4.1 trillion through the sale of debt securities like three- to 12-month T-bills and three- to 30-year Pakistan Investment Bonds (PIBs) over the next two months (Nov-Dec 2022).

Of this, it will repay Rs3.975 trillion to commercial and Shariah- compliant banks against their maturing debt.

Tawfiq noted that the cut-off yields (banks’ lending rate for the government) on T-bills and PIBs had stabilised in recent weeks after remaining highly volatile for quite a long time.

“Rates stabilised after the central bank kept injecting liquidity into commercial banks for unusual long tenures of 63 to 67 days,” she said.

The rate of return on three to 12-month T-bills stabilised in the range of 15.72% to 15.74%. The return on three-year to 10-year PIBs remained in the range of 12.95% to 13.84%.

Secondly, Ishaq Dar’s appointment as the finance minister, who had a firm stance on controlling the economy instead of leaving it at the mercy of market players, also forced banks to put a limit on their profit margins.

In the recent past, the government also initiated an investigation into eight banks for their alleged involvement in manipulating the rupee-dollar parity to make a quick buck.

Gold loses shine

Gold continued to lose shine as it maintained a downturn for three consecutive working days. With the latest drop of Rs1,000 on Saturday, the bullion has lost Rs4,000 to stand at Rs146,400 per tola (11.66 grams).

The downward momentum was largely in line with the international trend. Gold hit over two-year low at $1,580 per ounce (31.10 grams) in intra-day trading in the global market on Friday.

It maintained the downturn on the outlook that the US central bank would keep increasing the interest rate till it reached 5%. The objective of rate hike is to control a four-decade high inflation.

The rate hike in recent months has supported the US dollar to strengthen against major global currencies.