The State Bank of Pakistan (SBP) injected liquidity of Rs19.7 billion into the banking system on Friday.

According to data released by the SBP’s Domestic Markets and Monetary Management Department, the central bank conducted an open market operation (injection), which resulted in an offered amount of Rs24.7 billion and the accepted amount of Rs19.7 billion.

The tenor of the latest open market operation is seven days, with the accepted rate of return clocking up at 9.93% per annum.

This is the eighth open market operation (injection) of the SBP since the start of the fiscal year on July 1. The SBP injected a cumulative Rs506.1 billion in the first seven operations.

The last open market operation took place on August 15 when the central bank injected liquidity of Rs85.9 billion into the banking system. Importantly, there has not been any run on banks/liquidity shortage despite impassioned calls for civil disobedience and civic disorder by two opposition groups during the last two weeks.

Meanwhile, latest monetary data released by the SBP shows money supply in the economy shrank by 2.04% during the first one and a half months of the current fiscal year in contrast with the contraction of 0.36% recorded in the comparable period of 2013-14.

The contraction in broad money between July 1 and August 15 was Rs203.8 billion compared with the negative monetary impact of Rs32.3 billion recorded over the corresponding period of the last fiscal year.

Provisional data on monetary aggregates shows the currency in circulation has increased by Rs117.5 billion since the start of the current fiscal year. The increase in the currency in circulation during the same period of the last fiscal year was Rs185.9 billion.

Total currency in circulation on August 15 stood at Rs2.29 trillion, SBP monetary aggregates show.

The contraction in money supply is because of a decline in net federal government borrowings from the central bank for budgetary support. They amounted to only Rs25.1 billion as opposed to Rs594.3 billion during the first month and a half of the last fiscal year. This translates into a year-on-year decline of 95.7% in net borrowings from the SBP between July 1 and August 15.

Growth in broad money remained comparatively constrained in 2013-14 compared with the preceding fiscal year because of a reduction in its borrowings from the banking sector. Growth in money supply in 2013-14 was 12.53% as opposed to the monetary expansion of 15.91% recorded in 2012-13.

Net federal government borrowings from scheduled banks until August 15 remained Rs82.4 billion. They were in the negative zone during the same period of 2012-13 when the government retired Rs401 billion.

Credit to the private sector has increased significantly in the last fiscal year. It amounted to Rs383.9 billion in contrast with a negative Rs19 billion in 2012-13. Credit to the private sector touched a six-year high in the last fiscal year, according to the latest Economic Survey of Pakistan.

However, in the first month and a half of 2014-15, private-sector credit clocked up at negative Rs78.9 billion. The private sector had retired Rs74.4 billion in the comparable period of 2012-13.

According to the auction target calendar for the sale of government market treasury bills, the federal government aims to borrow as much as Rs700 billion by the end of the first quarter of 2014-15. Separately, the government plans to raise another Rs300 billion through the sale of long-term Pakistan Investment Bonds.

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