The Central Bank conducted a seven-day term-deposit auction on Friday, absorbing a total of Lm147.7 million from the banking system.
This was Lm7.6 million more than the Lm140.1 million that matured on the same day. The rate resulting from the auction was 3.45 per cent, being the floor of the interest rate band (3.45-3.50 per cent) at which the Central Bank is currently conducting its term deposit auctions.
The net absorption of funds was in response to an increase in bank liquidity during the week under review. Credit institutions started the week with an overall surplus in their statutory reserve deposit accounts with the Central Bank, while government direct credits of Lm8.5 million, mainly related to pensions and social security payments, and net maturing Treasury bills held by credit and financial institutions amounting to Lm5.6 million boosted liquidity further.
Partly offsetting these factors was a Lm1.9 million expansion in currency in circulation.
Interbank activity decreased considerably during the week, with turnover dropping to Lm5.6 million, from Lm14.1 million in the previous week. Seven deals were effected, all in the overnight tenor, at a weighted average interest rate of 2.74 per cent.
This was lower than the normal level of recent weeks and 64 basis points below the weighted average rate on overnight deals in the previous week. In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on January 12, 2007 and 182-day bills maturing on April 13, 2007. From the Lm30.7 million worth of bids submitted for the three-month bill, bids for Lm7.7 million were accepted by the Treasury, while from the Lm22.5 million worth of bids for the six-month tenor, bids for only Lm0.9 million were accepted.
Given that Lm16.1 million bills matured during the week, the outstanding balance of Treasury bills decreased by Lm7.5 million to Lm145.9 million.
The latest three-month rate resulting from the week's Treasury bill auction was 3.6455 per cent. This was 0.2 basis points lower than the rate on 91-day bills issued on September 15 and reflected a bid price of Lm99.0993 per Lm100 nominal.
The latest rate for the six-month tenor was 3.7578 per cent, 0.8 basis points higher than the previous rate on six-month bills, those issued on September 29. The latest yield reflected a bid price of Lm98.1607 per Lm100 nominal.
Today, the Treasury will invite tenders for 28-day bills maturing on November 17 and 91-day bills maturing on January 19, 2007. In the following week, the Treasury will accept bids for 91-day bills maturing on January 26, 2007.
Trading in the secondary market for Treasury bills remained low, as in the previous week, amounting to Lm0.5 million. All deals involved the Central Bank, in its role of market maker.