Excess liquidity in the banking system continued to increase in the week ended August 29. The main contributing factor for this rise was the fact that credit institutions started the week under review with an excess in the reserve deposit account which they are legally bound to hold with the Central Bank.
Other liquidity-inducing factors included an increase in the Central Bank's net foreign assets of Lm13.5 million together with payments by government totalling Lm14.4 million in direct credits, mostly relating to salaries and Treasury pensions. Partly mitigating this liquidity increase, were a net issue of treasury bills of Lm6 million as well as net payments through the cheque clearing system amounting to Lm5.4 million.
Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday within the rate band of 3.2-3.25 per cent. During this auction, Lm66 million were absorbed. This was substantially higher than the Lm37 million maturing on the same day.
As a result, outstanding term deposits held at the Bank increased by Lm29 million, from Lm148 million of the previous week, to Lm177 million which is a record high for the current year. This auction was carried out at a rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
In the week under review, one deal was transacted in the interbank market amounting to Lm1.5 million. This was dealt in the two-week tenor at a rate of 3.2 per cent. This was two basis points lower than the last interbank deal in the same tenor transacted on August 1.
In the primary market, the Treasury received tenders for 182-day treasury bills to mature on February 27, 2004. Total volume of bids submitted for this auction amounted to Lm56.9 million, with the Treasury issuing only Lm16 million worth of treasury bills. Given that maturing treasury bills (91-day) amounted to Lm10 million, the level of outstanding treasury bills increased by Lm6 million, from Lm237 million to Lm243 million.
The weighted average rate for this issue was 3.1962 per cent, reflecting a bid price of 98.4313 per Lm100 nominal. This rate is 15.8 basis points lower than the previous treasury bill primary rate for the same tenor issued on June 13. This reduction reflects the 25 basis points cut in the central intervention rate during the intervening period.
Today, the Treasury will receive applications for 91-day treasury bills to mature on December 5, 2003. For the following week the Treasury will invite tenders for both 182-day bills and 273-day bills to mature on March 12 and June 11, 2004, respectively.
Turnover in the secondary market during the week under review amounted to only Lm36,000, transacted by the Central Bank in its role as market maker. No deals were effected outside the Central Bank.