The State Bank of Pakistan (SBP) gave the development finance institutions (DFIs) permission to take part in open market operations (OMOs) on Tuesday. This will help them manage their cash flow.
A circular says that DFIs will also be able to take part in OMOs if they follow the rules and instructions in the master circular DMMD Circular No. 12 of 2017.
The SBP does OMOs to make sure that the overnight repo rate on the money market is close to the “policy rate,” which is the SBP’s target rate. This was made possible by the revised Interest Rate Corridor Framework.
In a circular, the central bank said that both scheduled banks and primary dealers can take part in these OMOs. But the central bank could also run special OMOs in which only primary dealers could take part.
The OMO is a tool that the central bank uses to add or remove funds from the banking system, depending on how much liquidity is needed, by buying or selling eligible securities.
To fix the lack of cash in the system, the central bank lends money to banks in exchange for eligible collateral. Eligible collateral includes government of Pakistan market Treasury Bills, Pakistan Investment Bonds, and any other security listed by the SBP for this purpose.
The securities that the eligible participants have put in the Held to Maturity category cannot be used in OMOs.
For Bai Muajjal transactions, the counterparty can be an Islamic bank or a specialised Islamic window in a regular bank.
