The banking sector continued to be characterised by a high volume of excess liquidity in the week ended on Friday, although at a slightly lower level. The main contributing factors towards this marginal decline were the net purchase of treasury bills of Lm5 million and an increase of currency in circulation of Lm4 million. Mitigating these outflows from the banking system was 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. Other liquidity-inducing factors included government payments totalling Lm4 million relating to retirement pensions and dividends as well as net receipts through the cheque clearing system which totalled Lm3.3 million.

Accordingly, the Central Bank conducted a 14-day term deposit auction on Friday, absorbing Lm77 million from the banking sector. This is Lm2 million lower than the Lm79 million maturing on the same day. Consequently, outstanding term deposits held at the Bank fell marginally from Lm149 million to Lm147 million. This auction was carried out at rate of 2.95 per cent, being the floor of the interest rate band (2.95-3.00 per cent) at which the Central Bank conducts its term deposit auction.

Interbank activity picked up somewhat in the week under review with two interbank deals being transacted totalling Lm6.3 million. Both deals were effected in the one-week tenor at a weighted average rate of 2.9589 per cent, which was marginally higher (0.89 basis points) than the previous rate for a one-week deal effected on January 15.

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on May 7. Unlike previous auctions, the volume of treasury bills issued was reasonably close to the amount of bids submitted. In fact, Lm18 million bills were issued while the volume of bids was Lm22.3 million. Considering that Lm13 million treasury bills matured in the week reviewed, the outstanding bill total increased by Lm5 million, to Lm219.3 million from the previous week's Lm214.3 million.

The primary rate for this 91-day issue was 2.9471 per cent which is 0.72 basis points higher than the previous three-month treasury bill issue of January 23 (2.9399 per cent). The latest rate reflects a bid price of 99.2706 per Lm100 nominal. The marginal increase in the primary 91-day bill rate may be a consequence of the relative low bid to cover ratio.

Yesterday, the Treasury received applications for 91-day treasury bills to mature on May 14. Next Tuesday the Treasury will again receive applications for 91-day treasury bills maturing on May 21.

Turnover in the secondary dropped substantially to Lm651,000 from Lm4,758,000 of the previous week. These deals were entirely transacted by the Central Bank which effected net purchases of Lm623,000 in its role as market maker.