http://www.pakistantoday.com.pk/2012/05/19/news/profit/one-step-closer-to-the-edge…/
KARACHI - The central bank Friday pumped over Rs 169 billion into the liquidity-scarce banking system where enough cash is available, however, to be invested in the heavily-weighted government securities by the risk-averse commercial banks. The economic observers from official and unofficial quarters are cautiously looking at the growth prospect in the crises-hit country as much of the banks liquidity currently is catering the ever-burgeoning budgetary needs of the cash-strapped government.
With an unprecedented frequency, the State Bank of Pakistan (SBP) is injecting huge sums into the currency market to help the banks avoid a possible liquidity crunch. Some critiques view that by pumping billions in the system the central bank is indirectly lending to the funds-starved government which has broken all previous records of its budgetary borrowings from the banking system during this financial year. Friday saw the State Bank injecting Rs 169.550 billion at an annual rate of return of 11.59 percent.
The amount was injected by the SBP through conducting reverse repo open market operations in the T-bills and PIBs of 7-day maturity. Quotation range for the current injection was 11.62 to 11.55 percent. Whereas the central bank agrees that the reverse repo OMOs are carried out in times of liquidity shortage in the banking system the investment behavior of the commercial banks tells a different story. The State Bank data show that during July-April 13, FY12 the banks lent over Rs 951 billion to the government through purchasing T-bills, Pakistan Investment Bonds and Ijara Sukuk. Compared with last corresponding periods Rs 424 billion, this shows a mammoth growth of 124 percent.
Of the total, over Rs 629 were lent by the scheduled banks and Rs 322 billion by the State Bank. This massive banks lending to the public sector leaves little liquidity available in the system for the growth-oriented private sector which, during the review period, could manage to secure only Rs 219 billion of the total banks loans. FY11 was worse with the banks advances to the private sector totaling at Rs 187 billion. The State Bank takes comfort from the impression that the current recessionary climate had crippled demand for bank loan from the private businesses.
The traders and industrialists, however, do not agree with the regulators claim. I dont agree that the demand for private sector loan is reduced, Mian Abrar Ahmed, President Karachi Chamber of Commerce and Industry confided to Pakistan Today in a recent pre-budget seminar at the Karachi Press Club. His remarks came in response to former SBP Governor Dr Ishrat Hussain who told a questioner the demand was low. To the SBPs auctions for selling government papers, the banks always come up with surplus bids, which depict that the banks have enough liquidity to offer if the borrower is a sovereign guarantor, namely the government.
The economic observers warn that the present liquidity management by the SBP would take its toll on the troubled economy in the face of aftereffects. Over and above, inflation might pop back up as a leading concern during FY13 as an aftereffect of current liquidity and money supply trends, viewed Farhan Bashir Khan, an analyst at InvestCap. Also, the International Monetary Fund believes that the central banks injection of huge sums in the money market could have inflationary affect on the economy similar to that of the printing of new banknotes by the State Bank. A local banker, however, brushed aside the IMFs concern as baseless saying it could have been the case only had the State Bank been printing new currency notes.
I started a thread this morning citing how many times SBP had done the OMOs this year and in the evening I see the above article.
The State Bank of Pakistan injects Rs169.550 billion May 18th, 2012
SBP injects Rs111.350 billion in reverse repo 11th May, 2012
SBP injects Rs 200 billion in the market 13 Apr 2012
SBP injects Rs223bn into banking system 27 Mar 2012
SBP injects Rs 346.250 billion in the market 9 Mar 2012
State Bank of Pakistan injects Rs 37 billion 7 Feb 2012
SBP injects Rs 270.650 billion in the market 3 Feb 2012
SBP injects Rs 41.400 billion in the market 10 Jan 2012
SBP injects Rs 175.050 billion in the market 6 Jan 2012
SBP injects Rs 175.050 billion in the market 6 Jan 2012
TOTAL = Rs 1.404 TRILLION
Since the start of 2012, State Bank has PRINTED Rs 1.4 TRILLION rupee and HANDED it to the BANKS! Govt printing to alag hain.
