The banking sector continued to exhibit an increase in excess liquidity in the week under review. This was attributed to the fact that credit institutions started the week with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, there were also net maturing treasury bills totalling Lm4 million. These were partly mitigated by an increase of Bank notes in circulation amounting to Lm4.2 million.
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 3.45-3.5 per cent. During this auction, Lm77.5 million were absorbed, Lm9.5 million more than the amount maturing on the same day.
As a result, outstanding term deposits held at the Bank increased from Lm153 million of the previous week, to Lm162.5 million. The weighted average rate resulting from the auction 3.45 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
This rate was marginally lower than the weighted average rate of 3.4665 per cent resulting from last week's auction.
No deals were transacted in the interbank market. This again reflects the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on September 5.
Demand for bills once more exceeded the total bills issued by the Treasury. In fact, total bids amounted to Lm56.5 million, while the Treasury issued Lm16 million worth of bills.
Since Lm20 million matured on the same day, the amount of Treasury bills held by the non-government sector decreased by Lm4 million, from Lm260.1 million to Lm256.1 million.
The weighted average rate resulting from this auction was 3.4390 per cent, which is lower by 6.45 basis points than the previous rate of 3.5035 per cent. The new rate reflects a bid price of Lm99.1499 per Lm100 nominal.
Today, the Treasury will receive applications for 182-day bills to mature on December 12. Next Tuesday the Treasury will invite tenders for 91-day treasury bills to mature on September 19.
During the week under review, turnover in the secondary market amounted to Lm4 million. The bulk of volume, Lm3.7 million, was the result of interbank deals effected outside the Central Bank.
The remaining Lm0.3 million were purchases transacted by the Bank in its role of market maker.