In the week ended on September 19, the banking system's level of short-term liquidity persisted although at a substantially lower level than the previous week. This was mainly due to the fact that credit institutions started the new maintenance period September 15 - October 14 with a shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank. Partly mitigating this decline in excess liquidity were government payments of Lm2 million in direct credits mainly relating to retirement pensions.

Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the rate band of 3.2-3.25 per cent. During this auction, Lm75 million were absorbed, this being significantly lower than the Lm105.7 million maturing on the same day. As a result, outstanding term deposits held at the Bank decreased by Lm30.7 million, from Lm175.2 million of the previous week to Lm144.5 million. This auction was carried out at a rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

There were two interbank transactions in the week under review. One deal, amounting to Lm1 million, was transacted in the overnight tenor at a rate of 3.2 per cent. This rate was four basis points higher than the previous deal in the same tenor transacted in July. Another transaction of Lm1.5 million was effected in the one-week tenor at a rate of 3.2 per cent, unchanged from the previous deal transacted during August.

In the primary market, the Treasury received tenders for 364-day treasury bills to mature on September 17. Once again the volume of bids submitted far exceeded total bills issued. In fact, the Treasury issued Lm20 million worth of treasury bills against a total volume of Lm62.3 million in bids. Given that total maturing treasury bills amounted to Lm20 million, the level of outstanding treasury bills remained unchanged at Lm234 million.

There was also a significant decline in the 364-day weighted average rate, which dropped from 3.2493 per cent (July 25) to 3.1326 per cent, that is by 11.67 basis points. The new rate reflects a bid price of Lm96.9706 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day Treasury bills to mature on December 26.

For the following week the Treasury will invite tenders for 91-day bills to mature January 2, 2004.

In the week under review trading in the secondary market amounted to Lm12,096,000. Deals transacted outside the Central Bank amounted to Lm12,032,000, while the Central Bank effected net sales of Lm8,000 in its role as a market maker.