The banking sector continued to experience excess liquidity last week. This surplus was mainly due to the fact that banks started the week with an excess in their reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, there was the maturity of Lm47 million term deposits and the partial redemption of Lm6 million worth of treasury bills by way of a buy-back operation by the Treasury from the market. This was partly offset by the net issue of treasury bills amounting to about Lm4.1 million together with net payments by banks in respect of cheque clearing amounting to Lm2.8 million.
Accordingly, a 14-day term deposit auction was conducted by the Central Bank on Friday. The Central Bank invited tenders within the rate band of 3.7-3.75 per cent. During this auction, Lm53 million were absorbed, Lm6 million more than the amount maturing on the same day.
As a result, outstanding term deposits held at the Central Bank increased from Lm110 million, of the previous week, to Lm116 million. The weighted average rate resulting from this auction remained at 3.7 per cent, being the floor of the interest rate band at which the Bank conducts its term deposit auction.
In the week under review, two deals amounting to Lm2.7 million were transacted in the domestic interbank market. Both were dealt in the seven-day tenor at a weighted average rate of 3.6870 per cent, which is 11.3 basis points lower than the last deal transacted in the same tenor way back in January 2003.
In the primary market, the Treasury received tenders for 91-day Treasury bills to mature on August 8.
Demand for bills was again higher when compared to the total bills issued by the Treasury. In fact, total bids amounted to Lm23.6 million, while the Treasury issued only Lm10 million worth of bills. Since Lm6 million matured on the same day together with a partial redemption of Lm6 million worth of treasury bills, the level of outstanding treasury bills held by the non-government sector decreased by Lm2 million to Lm266.7 million.
The weighted average rate resulting from this auction was 3.5386 per cent which is marginally higher than the previous rate of 3.5340 per cent. The new rate reflects a bid price of Lm99.1255 per Lm100 nominal.
On Tuesday, the Treasury will invite tenders for 90-day bills to mature on August 15 . For the following week it will receive tenders for 91-day treasury bills to mature on August 22.
During the week under review, turnover in the secondary market amounted to Lm251,000 which were transacted with the Central Bank in its role of market maker.