THis is called Reverse Repo. Govt is borrowing like crazy from the Commercial Banks, leaving them with no cash. Plus depositors too are pulling cash from the banking sector. Here's a record from just the last 4 reverse repos in less than 30 days.
[TABLE="class: grid, width: 500"]
[TR]
[TD]September 24th, 2012[/TD]
[TD]Rs 561.7 Billion[/TD]
[/TR]
[TR]
[TD]September 28th, 2012 [/TD]
[TD]Rs 611.5 Billion[/TD]
[/TR]
[TR]
[TD]October 9th, 2012 [/TD]
[TD]Rs 12.5 Billion[/TD]
[/TR]
[TR]
[TD]October 12th, 2012[/TD]
[TD]Rs 603.2 Billion[/TD]
[/TR]
[TR]
[TD][/TD]
[TD]Rs 1.78 Trillion[/TD]
[/TR]
[/TABLE]
Imagine the type of inflation Pakistanis will see if state bank is printing this sort of money on a monthly basis.
Here's the article from TheNews covering the recent reverse repo
State Bank injects Rs603bn into banking system
KARACHI: The State Bank of Pakistan (SBP) on Friday injected Rs603 billion worth of liquidity into the banking system through the open market operation, as aggressive government borrowing and weak external account put pressure on the money market, said analysts.
The State Bank conducted open market operation to counterbalance the effects of huge government borrowing from commercial banks. The government made a record borrowing of Rs532 billion during the first quarter (July-September) of the current fiscal year to finance its budget deficit, leaving little room for private sector credit, they said.
In another round of reverse repo market operations in the Treasury Bills and Pakistan Investment Bonds, the SBP pumped Rs603 billion in the banking system against the same offered amount. The rate of return stood at 9.01 percent per annum.
This massive amount of liquidity injection also shows cash crunch in the banking system.
The analysts said that the government is the major beneficiary of the hefty liquidity injection in the money market.
“The central bank is continuously pumping liquidity in the banking system to evade liquidity shortage and reduce the cost of government borrowing,” said Ahsan Mehanti, an analyst at Arif Habib Investment.
The State Bank in its report also mentioned that the monetary management proved quite challenging for it, owing to rise in the fiscal deficit and frail balance of payments position.
While the external deficit led to contraction in domestic liquidity, growing government appetite for funds put an additional squeeze on the rupee liquidity in the market, it said.
Pakistan’s exchange rate is under pressure due to huge external debt and high import payments, which is evident from the fact that the rupee has depreciated by 10 percent against the dollar since October 2011.
Along with the recent monetary policy decision, the central bank announced several measures to ensure smooth availability of the rupee liquidity in the money market.
The overnight lending and deposit rates stood at 10 percent and seven percent, respectively, the lowest since 2008.
The SBP also reduced banks’ daily cash reserve requirement (CRR) to three percent from four percent.
The government plans to borrow Rs1.12 trillion from the banking system during October-December 2012 through the sale of three-, six-, and twelve-month market treasury bills.
There are two more auctions of the market treasury bills scheduled to be held this month, one on October 17 and the other on October 31, with targets of Rs200 billion and Rs250 billion, respectively.
Last edited:
