The Central Bank conducted a term-deposit auction on Friday during which it absorbed a total of Lm121 million from the banking system. This was Lm11.5 million more than the Lm109.5 million worth of term deposits that matured on the same day. The rate resulting from the auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Central Bank conducts its term-deposit auctions.
During the preceding week, liquidity in the banking system had continued on its upward trend for the second consecutive week. The main factors contributing to the increase were government direct credits, mainly related to salaries, totalling Lm13.3 million and a Lm2.5 million contraction in currency in circulation.
Other contributory factors were foreign exchange deals worth Lm2 million and other inflows of Lm6.2 million. The latter were both transacted with institutions that are not eligible for participation in the Central Bank's term-deposit auctions and therefore led to an inflow of funds to the relevant liquidity pool. Partly offsetting these factors was an Lm11.6 million net issue of Treasury bills (effecting eligible counter-parties) and a negative net cheque clearing of Lm1.3 million.
During the week under review, interbank activity increased to Lm4.7 million, from Lm2.8 million in the previous week. A total of four deals were struck. Two were effected in the overnight tenor, at a weighted average interest rate of 3.24 per cent, two basis points higher than in the previous week.
The other two were transacted in the one-week tenor at a weighted average interest rate of 3.17 per cent, six basis points lower than the one-week deal struck in the previous week.
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on May 26. From the Lm45.3 million worth of bids submitted, tenders for Lm15.3 million were accepted by the Treasury. Since Lm9 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm6.3 million, from Lm173.3 million to Lm179.6 million.
The latest three-month rate resulting from the week's Treasury bill auction was 3.1829 per cent. This was 0.7 basis points higher than the previous 91-day rate for Treasury bills. The latest rate reflected a bid price of Lm99.2127 per Lm100 nominal.
Today, the Treasury will invite tenders for 91-day bills maturing on June 2. In the following week, the Treasury will accept bids in the same tenor to be issued on March 10 and maturing on June 9.
Turnover in the secondary market for Treasury bills amounted to Lm1.2 million, which was Lm2.3 million lower than the Lm3.5 million turnover recorded in the previous week. All deals were effected by the Central Bank in its role of market maker.