In the week ended on Friday, the level of liquidity in the banking sector remained high, albeit at a lower level than the previous week. This decline was mainly due to the fact that credit institutions started the week under review with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Further accentuating the decrease in liquidity, were outflows pertaining to the issuance of Lm10 million treasury bills and Lm1.5 million net payments through the cheque-clearing system.
Partly mitigating these liquidity-reducing factors were government payments of Lm2.1 million direct credits mainly relating to social security payments and dividend warrants as well as a decrease of Lm1.5 million in currency in circulation.
On Friday, the Central Bank held its usual 14-day term deposit auction. An aggregate of Lm44.5 million was absorbed from the banking sector, Lm18.1 million less than the Lm62.6 million worth of term deposits which matured on the same day. Thus the level of outstanding term deposits held by credit institutions at the Central Bank decreased from Lm113.1 million to Lm95 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95 per cent - three per cent) at which the Central Bank conducts its term deposit auctions.
Activity in the interbank market picked up significantly in the week under consideration. A total of Lm16 million were transacted which contrasted sharply with the previous week's level of Lm2.7 million. Two deals were effected in the overnight tenor at a weighted average rate of 2.915 per cent. The latest overnight rate was up slightly by 1.5 basis points over the rate dealt on October 15. Furthermore, two deals were effected in the one-week tenor at a weighted average rate of 2.95 per cent, down by one basis point compared to the previous deal transacted on July 23.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on January 21, 2005. The number of bids submitted totalled Lm20.4 million, of which Lm10 million worth of bids were accepted by the Treasury. Given that there were no bills maturing in the week under review, the outstanding balance increased from Lm248 million to Lm258 million.
The latest three-month rate resulting from this auction was 2.9618 per cent, up marginally (by 0.13 basis points) from the previous 91-day rate of auction held on October 12. This rate reflects a bid price of Lm99.2670 per Lm100 nominal.
Today, the Treasury will receive applications for 28-day bills to mature on November 26. For the following week, the Treasury will receive tenders for 91-day bills maturing on February 4, 2005.
In the week under review, secondary market turnover in treasury bills declined, from the previous week's level of Lm1.1 million to Lm553,000. All trading was effected by the Central Bank in its role as market maker.