In the week under review, short-term liquidity in the banking system remained virtually unchanged.
The negative impact on liquidity spurred by the increase in treasury bill holdings of commercial banks and other institutional investors, totalling Lm6 million, was almost completely offset by the fact that credit institutions started the last week of the reserve deposit maintenance period (ending February 14) with a surplus in the reserve deposit accounts, which they are required to hold at the Central Bank.
Thus, since the banking system had a substantial amount of excess funds, arising mainly from maturity of Lm70 million term deposits, the Central Bank on Friday conducted a term-deposit auction to absorb this surplus liquidity. In this auction, credit institutions deposited Lm69 million, Lm1 million less than the amount that matured. As a result, the volume of term deposits held with the Central Bank decreased from Lm147 million to Lm146 million.
The weighted average rate on these deposits remained unchanged at 2.95 per cent, which is the floor of the interest rate band used in the Central Bank's term-deposit auctions.
No interbank deals were registered in the week under review. This is a reflection of the strong liquidity position prevailing across the banking system. The government offered a tender for 91-day treasury bills.
A total of Lm22.85 million bids were submitted, of which Lm10 million were accepted. Given that Lm4 million treasury bills matured during the week, the volume of outstanding treasury bills increased by Lm6 million to Lm225.3 million.
The 91-day primary rate edged slightly lower to 2.9422 per cent from the previous 91-day rate of 2.9471 per cent. The latest rate represents a bid price of Lm99.2718 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on May 21. Next week, the Treasury will receive applications for 364-day treasury bills maturing on February 25, 2005.
Trading in the secondary market was very thin, totalling Lm91,000. This was significantly lower than the Lm651,000 recorded in the previous week. All trades were conducted with the Central Bank in its role as a market maker, with the bank being a net buyer of bills.