SBP allows DFIs to participate in open market operations

KARACHI: The State Bank of Pakistan (SBP) on Tuesday allowed the development finance institutions (DFIs) to participate in the open market operations (OMOs) to facilitate them in their liquidity management.

According to a circular, the DFIs would also be eligible to participate in OMOs as per the instructions and procedure stipulated in the master circular DMMD Circular No 12 of 2017.

The SBP conducts OMOs to keep the money market overnight repo rate close to the SBP target “policy rate” introduced under the revised Interest Rate Corridor Framework.

The central bank in a circular said that all scheduled banks and primary dealers are allowed to participate in these OMOs. However, the central bank may also conduct special OMOs in which only primary dealers will be eligible to participate.

The OMO is a tool used by the central bank to inject or mop up funds, based on the liquidity requirements, from the banking system via the purchase or sale of eligible securities.

The central bank lends funds to the banks against eligible collateral to address the liquidity shortage in the system, with eligible securities, including the government of Pakistan Market Treasury Bills, Pakistan Investment Bonds and any other security notified by the SBP for this purpose.

The securities classified by the eligible participants under the Held to Maturity category cannot be used in OMOs.

For Bai Muajjal transactions, Islamic banks and specialised Islamic windows of conventional banks are eligible counterparties.