Professional Documents
Culture Documents
SBP Market Operations
SBP Market Operations
And
Market Management
by,
Muhammad Arif
Senior Joint Director
Financial Markets Strategy & Conduct Department
Functions of SBP
Like any other Central Bank, State Bank of Pakistan
has its roles and functions to perform.
State Bank of Pakistan Act 1956 requires the Bank
to "regulate the monetary and credit system of
Pakistan and to foster its growth in the best national
interest with a view to securing monetary stability
and fuller utilization of the country’s productive
resources".
2
Functions of SBP Contd…
3
Functions of SBP Contd…
4
Instruments of Monetary Policy
Direct Instruments:
These are direct controls on the financial prices
(interest rates) or quantities ( deposits or credits)
of financial institutions.
Indirect Instruments:
These influence the behaviour of financial
institutions by affecting initially the central bank's
own balance sheet or the pricing (interest rates) of
central bank facilities, and are used mainly in
liberalizing or liberalized financial systems.
5
Direct Instruments
Direct instruments are typically directives given by
the central bank to control the quantity or price
(interest rate) of money deposited with
commercial banks (and sometimes other financial
institutions) and credit provided by them.
6
Pros and Cons of Direct Instruments
• Advantages • Disadvantages
8
Reserve Requirements contd…
9
Indirect Instruments
SBP uses targeting monetary aggregates for its
monetary management function, So Indirect
instruments are used for controlling price or volume of
the supply of its own liabilities i.e. reserve money,
which in turn affects interest rates and the quantity of
money and credit in the whole banking system.
11
Procedure of Conducting Auctions
13
Pakistan Investment Bond (PIB) Auction
• PIB are issued in tenors of 3, 5, 10, 15, 20 and 30
years in auctions, according to the quarterly targets
given by MOF.
• PIBs are sold to meet the GOP long term
requirements and to provide benchmark rates to
the Capital Market Transactions.
• 15 days prior to the auction, targets are announced
on Reuters and sealed bids are invited.
• The 15 days period, i.e. from the day of
announcement to the auction day, is called short
selling period.
• Auction committee decides the cut-off yields.
14
Open Market Operations (OMOs)
• Using computerized reporting system SBP monitors
the daily liquidity position of the market and on the
basis of those reports SBP either injects money to
the market by lending against collateral through
reverse repo transaction or by an outright
purchasing, or mops-up money from the market by
selling securities or by conducting repo transaction.
16
Exchange Rate Management
17
Factors requiring Ex. Rate
Management
18
Factors Affecting Exchange Rate
19
Foreign Exchange Transactions
20
Foreign Exchange Transactions
21
Foreign Exchange Transactions contd…
Forward Transactions
• Outright sale/purchase of a currency against
another, for settlement at a future date and at
a predetermined exchange rate.
• Forward rates are quoted as premium or
discount over spot rate and depend upon the
interest rate differential of the two currencies.
• Currency having higher interest rate is at
discount w.r.t. the currency with lower interest
rate similarly currency having lower interest
rate is at premium w.r.t. the currency with
higher interest rate.
22
SBP’s Intervention in FX Market
SBP Intervenes
23
Foreign Exchange Exposure
24
Forex Exposure Limit (FEEL)
25
Other Forex Related Functions
26
Thank You!
27