After declining in the previous five weeks, the banking sector's level of surplus liquidity picked up in the week ended on Friday. Inducing this rise was the fact that credit institutions started the week reviewed with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Other liquidity-enhancing factors were government payments in direct credits of Lm2 million, mainly relating to social security, as well as Lm1.7 million in dividends. Partly counteracting these was a Lm1.2 million increase in currency in circulation.
On Friday, the Central Bank held its usual 14-day term deposit auction to absorb the excess liquidity. During this auction, a total of Lm37.4 million was absorbed from the banking sector, which is Lm19.4 million higher than the Lm18 million worth of term deposits maturing on the same day. As a result, outstanding term deposits held by credit institutions at the Central Bank increased from Lm67.5 million to Lm86.9 million. The rate resulting from this auction declined slightly from 2.9526 per cent to 2.95 per cent, the latter being the floor of the interest rate band (2.95-3.00 per cent) at which the Central Bank conducts its term deposit auction.
Activity in the interbank market decreased by Lm13.2 million in the week under review, reflecting the high level of liquidity prevailing across the whole banking sector. One deal was transacted on an overnight basis to the tune of Lm3 million. The rate dealt was 2.58 per cent, which was 37 basis points down from the 2.95 per cent dealt on May 31. This decline in the overnight rate was mainly attributable to the fact that the initiative was taken by the lending bank and thus the borrowing bank used a rate closer to its published bid rate.
In the primary market, the Treasury invited tenders for 182-day treasury bills to mature on December 10, 2004. Total bids submitted amounted to Lm21.2 million which exceeded the Lm15 million treasury bills issued. During this period, Lm15million worth of treasury bills matured. Consequently, the outstanding stock of treasury bills remained at the same level of Lm265.8 million.
The primary Treasury bill rate for the 182-day issue increased by one basis point, from 2.9024 per cent to 2.9124 per cent. This rate reflects a bid price of Lm98.5686 per Lm100 nominal.
Today, the Treasury will receive applications for 364-day bills to mature on June 17, 2005. Next week, the Treasury will hold two auctions, for 272-day and 364-day treasury bills to mature on March 24, 2005 and June 24, 2005, respectively.
Turnover in the treasury bill secondary market amounted to only Lm36,000. This amount was Lm50,000 less than that transacted during the previous week. All transactions were effected by the Central Bank in its role as market maker.