On Friday (July 11), the SBP reportedly injected a staggering Rs1.72 trillion into the banking system. While this move may appear to be a pragmatic response to short-term liquidity pressures, it also raises important questions about the structural health of Pakistan’s financial system and the underlying causes of persistent liquidity shortages. The sheer magnitude of the injection signals more than just a seasonal liquidity crunch. It points to systemic imbalances that require deeper scrutiny. High government borrowing, weak private sector credit demand and ongoing fiscal deficits continue to strain the banking system. In such an environment, OMOs risk becoming more of a recurring firefighting tool rather than a strategic monetary lever. Persistent liquidity support can also dull market discipline, especially if banks come to rely on central bank interventions instead of prudent asset-liability management.
That being said, one cannot ignore the necessity of the SBP’s move. In the face of mounting debt servicing needs, delayed fiscal reforms and uncertain external financing, the central bank must ensure that financial institutions remain functional and credit markets stable. It is imperative that such interventions are paired with long-term structural reforms to reduce reliance on central bank support and restore market confidence.
Rukaiya Ashraf Abbasi
Karachi
