Excess liquidity continued to characterise the banking sector in the week ended last Friday, albeit at a lower level than the previous week. This decrease in excess liquidity was mainly attributable to a net increase of Lm8 million in treasury bills issued. This was partly mitigated by a liquidity increase caused by a Lm3 million rise in the Central Bank's net foreign assets as well as a Lm1.5 million expansion in currency in circulation.
Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday. The Central Bank invited tenders within the rate band of 3.45-3.50 per cent. During this auction, Lm74.8 million were absorbed, Lm10.2 million less than the amount maturing on the same day. As a result, outstanding term deposits held at the Bank decreased from Lm162.5 million of the previous week, to Lm152.3 million. The weighted average rate resulting from the auction remained at 3.45 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
As in the previous week, no deals were transacted in the interbank market. This reflects the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury received tenders for 182-day treasury bills to mature on December 12. Once again, demand for bills exceeded total bills issued by the Treasury. In fact, total bids amounted to Lm47.3 million, while the Treasury issued Lm18 million worth of bills.
Since Lm10 million matured on the same day, the amount of outstanding treasury bills increased by Lm8 million, from Lm256.1 million to Lm264.1 million.
The weighted average rate resulting from this auction was sharply down to 3.3540 per cent, under the impact of the prolonged excess liquidity highlighting the money market. In fact, the latest rate was 21.42 basis points lower than the previous rate of 3.5682 per cent for 182-day treasury bills issued last March 14.
The new rate reflects a bid price of Lm98.3551 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on September 19. For the following week, the Treasury will again invite tenders for 91-day treasury bills to mature on September 26 and 273-day bills to mature on March 2004.
During the week under review, turnover in the secondary market amounted to just Lm0.48 million. These deals were transacted by the Central Bank in its role of market maker.