Excess liquidity in the banking sector persisted in the week ended December 5, albeit at a slightly lower level than the previous week. This reduction was due to the fact that credit institutions started the week under review with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Moreover, there were net payments through the cheque clearing system amounting to Lm4.4 million, the purchase of Lm2.7 million treasury bills in the secondary market and an increase of currency in circulation of Lm1.9 million.
Partly mitigating these outflows from the banking system were net maturing treasury bills of Lm8.9 million.
Consequently, the Central Bank conducted a 14-day term deposit auction on Friday, December 5, whereby Lm63 million were absorbed, Lm5 million lower than the Lm68 million maturing on the same day.
As a result, outstanding term deposits decreased from Lm110.5 million to Lm105.5 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95 per cent - three per cent) at which the Central Bank conducts its term deposit auction.
Three deals were transacted in the interbank market totalling Lm8 million. Two transactions were effected in the two-week tenor at a rate of 2.97 per cent, unchanged from that transacted last week in the same tenor.
Another deal was transacted in the one-week term at a rate of 2.97 per cent. This rate is 1.43 basis points higher than the weighted average rate for deals transacted in the same tenor in November 2003.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on March 5, 2004. The number of applications for this issue by far exceeded the total of bills issued by the Treasury. In fact total volume of bids amounted to Lm31 million while the Treasury issued only Lm100,000 worth of treasury bills. Given that the value of maturing treasury bills was Lm9 million in the week reviewed, the total outstanding treasury bills decreased by Lm8.9 million from Lm255.2 million to Lm246.3 million.
The weighted average rate resulting from this auction was 2.9455 per cent reflecting a bid price of Lm99.2710 per Lm100 nominal. This rate is marginally lower than the previous rate of 2.9471 per cent for bills issued on November 21. Today, the Treasury will receive applications for 91-day treasury bills to mature on March 12, 2004.
In the week under review, turnover in the secondary market amounted to Lm2,785,000. All these deals were transacted by the Central Bank which, in its role as market maker, effected net sales of Lm2,755,000.