The level of the banking sector's short-term liquidity increased substantially in the week under review. This rise in excess liquidity was mainly due to the fact that credit institutions started the last week of the maintenance period with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank as well as to net maturing treasury bills of Lm13 million.
Other liquidity-inducing factors included Lm2.6 million retirement pension payments through direct credits, the purchase by the Central Bank of Lm2.5 million worth of foreign currency from credit institutions together with Lm2.3 million dividend payments. Partly offsetting these inflows into the banking system was a Lm4.1 million increase in currency in circulation and the sale by the Central Bank of Lm1.5 million treasury bills in the secondary market.
Consequently, on Friday, the Central Bank conducted its weekly term-deposit auction for a 12-day term (since both Thursday, December 25, and Friday, December 26, are non-working days). The auction was conducted within the rate band of 2.95-3.00 per cent, where Lm65.4 million were absorbed. This was Lm22.9 million higher than the Lm42.5 million maturing on the same day.
As a result, outstanding term deposits increased from Lm105.5 million to Lm128.4 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band at which the Central Bank conducts its term-deposit auction.
Two interbank deals were transacted in the week under review totalling Lm2 million. These were dealt in the overnight tenor at a weighted average rate of 2.92 per cent. This rate is 28 basis points lower than the previous deal transacted in the same tenor. However, the previous deal was transacted in September, that is, before the last 25 basis points reduction in the central intervention rate.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on March 12, 2004. Demand for treasury bills by far exceeded the amount issued by the Treasury. In fact, the volume of bids amounted to Lm31.7 million while the Treasury issued only Lm5 million treasury bills.
Given that in the week reviewed the value of maturing bills amounted to Lm18 million, total outstanding treasury bills decreased by Lm13 million from Lm246.3 million to Lm233.3 million.
The weighted average rate resulting from this auction was 2.9451 per cent reflecting a bid price of Lm99.2711 per Lm100 nominal. This rate is marginally lower than the previous week's rate of 2.9455 per cent.
Today, the Treasury will receive applications for 90-day treasury bills to mature on March 18, 2004. Next week the Treasury will receive applications for six-month treasury bills to mature on June 25, 2004.
In the week under review, turnover in the secondary market amounted to Lm1,756,000. All these deals were transacted by the Central Bank which effected net sales of Lm1,506,000 in its role as market maker.