In the week under review, excess short-term liquidity in the banking sector continued to decrease. The reduction in the week's surplus was mainly due to net issue of treasury bills of Lm9 million and unfavourable cheque clearing of around Lm1 million.
Moreover, banks had a cumulative shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank. This was partly offset by maturing term deposits totalling Lm47 million.
Consequently, the Central Bank conducted a term deposit auction on Friday. Following this auction the Bank absorbed Lm23 million while Lm47 million matured.
Accordingly, outstanding term deposits fell from Lm104 million to Lm80 million. The latest auction was carried out at the weighted average rate of 3.7 per cent, being the floor of the interest rate band of 3.7-3.8 per cent at which the Central Bank conducts its weekly auctions for 14-day money.
During the week reviewed, three interbank deals were transacted. One deal was effected in the one-week tenor and two deals in the 14-day tenor. These were transacted at an average weighted rate of 3.8 per cent and 3.79 per cent respectively.
The one-week rate was 15.74 basis points lower than the previous rate transacted in November 2002, while the two-week rate was 19.5 basis points below the previous rate dealt in July 2002.
In the primary market, the government invited tenders for 91-day treasury bills to mature on April 4. The number of bids for treasury bills totalled Lm26.5 million while Lm23 million worth of bills were accepted by the Treasury. Since Lm14 million matured on the same day, the level of outstanding treasury bills increased from Lm218.8 million at the end of 2002 to Lm227.8 million.
The weighted average rate resulting from this auction was 3.7019 per cent, which is higher than the previous 91-day rate of 3.6737 per cent. This week's rate corresponds to a bid price of Lm99.0855. This rate is marginally higher than the Central Bank's absorption floor of 3.7 per cent.
Today the Treasury invites tenders for 91-day treasury bills to mature on April 11. Next week the Treasury will receive applications for 90-day treasury bills to mature April 17.
In the secondary market total turnover amounted to Lm1,560,000. These were all purchases conducted by the Central Bank in its role as a market maker. No deals were conducted outside the Central Bank.