KARACHI, Nov 6: The State Bank on Thursday injected Rs7.35 billion into the inter-bank market through reverse repos of treasury bills. The SBP conducted an open market operation to pump in liquidity into the banking system that had run out of it after Wednesday auction of Pakistan Investment Bonds.

The SBP priced the one-week and two-week reverse repos at 1.75 per cent and 2 per cent respectively. Senior bankers said the injection should ease off the temporary liquidity crunch the banks were facing after investing their surplus funds in PIBs on Wednesday.

Injection of liquidity through reverse repo means the central bank purchases treasury bills from banks with the understanding that it will sell them back to the banks on a given date. This releases extra cash into the system but that flows out after a certain time.

Senior bankers said SBP injected Rs5.85 billion through one-week repo and Rs1.5 billion through two-week repo which means that Rs5.85 billion will flow out of the banking system after one week and Rs1.5 billion after two weeks.

They said despite the injection of Rs7.35 billion the market would not be surplus in cash as it fell short of its demand for injection of Rs13.65 billion.

The SBP wants to keep the banking system fairly liquid during Ramazan and ahead of Eid to help banks finance cash withdrawals from the bank deposits for pre-Eid buyings.

Another purpose for keeping the system liquid is to maintain the current interest rate structure which is equally important from the SBP’s point of view because it does not want to signal the market about any shift in its loose monetary policy stance.