The banking sector continued to experience excess liquidity last week, although abating somewhat compared to the previous week. The main contributing factor inducing this decline was the fact that credit institutions started the week under review with a shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank.
Further accentuating this decrease were net payments through the cheque clearing system amounting to Lm7.2 million as well as a Lm1.7 million increase of currency in circulation.
Partly mitigating this decline in excess liquidity were government payments in direct credits of Lm3.1 million, mainly relating to dividends and Treasury pensions.
Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the rate band of 2.95-3.00 per cent. During this auction, Lm61 million were absorbed, as against the Lm75 million maturing on the same day.
As a result, outstanding term deposits held at the Bank decreased by Lm14 million, from Lm158.7 million of the previous week to Lm144.7 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.
Three interbank transactions were effected in the week under review. One was dealt in the one-week tenor at a rate of 2.93 per cent, which is lower by 27.5 basis points than the previous one effected in the same tenor last September (3.2050 per cent).
The other two interbank transactions were dealt in the 14-day tenor at a weighted average rate of 2.9567 per cent, which dropped by 25.42 basis points compared to that transacted in August (3.2109 per cent).
This notable decrease in these interbank rates is attributed to the fact that these deals were carried out subsequent to the most recent central intervention rate (CIR) cut of 25 basis points (September 26).
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on January 2, 2004. Once again, bids submitted exceeded total bills issued. In fact the Treasury issued Lm22 million worth of treasury bills against a total volume of Lm38.4 million in bids.
Given that total maturing treasury bills corresponded to the amount of bills issued, the level of outstanding treasury bills remained unchanged at Lm251 million.
There was also a significant decline in the 91-day weighted average rate, which dropped from 3.1515 per cent to 2.9548 per cent, that is by 19.67 basis points. This substantial decline in the 91-day treasury bill rate reflects the most recent cut in the CIR. The new rate reflects a bid price of Lm99.2687 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on January 9, 2004. For the following week the Treasury will invite tenders for 91-day bills to mature on January 16, 2004.
Trading in the secondary market picked up considerably in the week under review with turnover totalling Lm2.1 million.
Trading outside the Central Bank amounted to Lm1 million, while Lm1.1 million were transacted with the Bank in its role as market maker.