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A Deluge of Cash: SBP’s Excessive Injections in Open Market During July-March FY23 Revealed by Economic Survey


The inter-bank money market in Pakistan faced a liquidity crunch during the period of July-March FY23, in stark contrast to the previous year. The State Bank of Pakistan (SBP) played a significant role in this scenario, injecting a substantial amount of cash into the banks.

As highlighted in the Economic Survey 2022-23 by the Economic Advisor’s Wing of the Finance Division, the average outstanding Open Market Operations (OMOs) nearly doubled, reaching an all-time high of Rs. 6,520.5 billion during the review period. This marked a significant increase compared to Rs. 2,641.8 billion in the same period the previous year.

The survey underlined the impact of the government’s increased reliance on scheduled banks for financing, in the absence of central bank borrowing, on the liquidity conditions of commercial banks.

Moving on to T-Bills, during July-March FY2023, the market offered a total amount of Rs. 28,808.9 billion in primary auctions, slightly higher than the offered amount of Rs. 26,426.5 billion during the same period last year. The government was able to raise Rs. 15,514.6 billion (54 percent of the offered amount) through T-Bill auctions, compared to the accepted amount of Rs. 12,959.5 billion (49.0 percent of the offered amount) in the previous year. The majority of acceptance for T-Bill tenors was observed within the 3-month range, indicating market expectations of a potential tightening of the monetary policy stance.

Shifting focus to Pakistan Investment Bonds (PIBs), the government showed a preference for floating rate long-term debt instruments. Fixed-rate PIBs accounted for approximately 33.0 percent of the offered amount, while floaters constituted around 67.0 percent. With higher yields demanded by the market in relation to prevailing cut-offs, the government accepted only Rs. 968.9 billion from fixed coupon PIBs (16.6 percent of the accepted amount). Floaters played a significant role in raising medium-to-long-term debt, allowing the government to raise Rs. 4,861.4 billion through floating rate PIB issuances (83.4 percent of the accepted amount). Among the floaters, 2-year quarterly coupon PIBs emerged as the most favored instrument, contributing around 44 percent of the accepted amount.

In response to persistent high inflationary pressures, the monetary policy took an aggressive tightening approach, with the policy rate increasing by 8.8 percent to 21 percent over the past 12 months. The impact of this tight stance was evident in the rise of the Weighted Average Lending Rate (WALR) from 10.6 percent in March 2022 to 18.0 percent in March 2023. Similarly, the Weighted Average Deposit Rate (WADR) offered on fresh deposits rose from 5.1 percent to 8.1 percent during the same period. Consequently, the banking spread, representing the difference between lending and deposit rates along with the cost of intermediaries, increased from 5.5 percent to 9.9 percent between March 2022 and March 2023.

The Economic Survey sheds light on the significant injection of liquidity by the SBP into the open market during July-March FY23, highlighting the consequential effects on the money market and the government’s financing dynamics.

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