The level of liquidity in the banking sector remained unchanged in the week ended on Friday when compared to the previous week as inflows of funds into the system were broadly neutralised by outflows.
The major inflows during the week reviewed were Lm14 million government payments in direct credits mainly relating to salaries and social security.
These were reinforced by inflows of Lm4 million emanating from net maturing treasury bills of the banking sector. These liquidity-enhancing factors were in turn offset by the fact that credit institutions commenced the week under review with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Furthermore, there were net payments through the cheque clearing system amounting to Lm3.1 million as well as an increase of Lm1.4 million in currency in circulation.
On Friday, the Central Bank held its usual 14-day term deposit auction, whereby a total of Lm62.6 million was absorbed from the banking sector. Given that Lm62.8 million worth of term deposits matured on the same day, the level of outstanding term deposits held by credit institutions at the Central Bank only changed slightly, by Lm0.2 million, from Lm97 million to Lm96.8 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3 per cent) at which the Central Bank conducts its term deposit auctions.
Interbank market activity picked up somewhat in the week under consideration to Lm1.5 million compared to last week's turnover of Lm0.1 million. This reflected one overnight deal at a rate of 2.9 per cent, unchanged from the rate transacted on September 20.
In the primary market, the Treasury invited tenders for 273-day treasury bills to mature on July 8, 2005. The number of bids submitted, which totalled Lm22.5 million, was in excess of the Lm3 million worth of bids accepted by the Treasury. Given that aggregate bills maturing totalled Lm11 million, the outstanding treasury bill total decreased by Lm8 million (which included Lm4 million treasury bills which the Central Bank had purchased in the secondary market), from Lm256 million to Lm248 million.
The nine-month rate resulting from this auction was 2.9635 per cent, up slightly (by 0.32 basis points) from the 2.9603 per cent level of the previous auction for this tenor held on September 10. The latest rate reflects a bid price of Lm97.8315 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on January 14, 2005. For the following week, the Treasury will receive tenders for 91-day bills to mature on January 21, 2005. Activity in the treasury bill secondary market declined to only Lm13,000 in contrast with the previous week's level of Lm1.04 million. The Central Bank effected net sales of Lm1,000 in its role as market maker. No deals were transacted outside the Bank.