The volume of excess liquidity in the banking sector remained high, albeit decreasing in the week ended on Friday. The decline was mainly attributable 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. Other liquidity-reducing factors included the purchase by credit institutions of treasury bills totalling Lm8 million in the primary market (during a period when no bills matured) as well as net payments in respect of the cheque clearing system of Lm4.3 million. Partly offsetting these outflows from the banking sector was a seasonal decrease of currency in circulation of Lm1.5 million.

On Friday, the Central Bank conducted a 14-day term deposit auction within a rate band of 2.95-3.0 per cent. A total of Lm79 million was absorbed during this auction at a rate of 2.95 per cent. This amount was Lm19 million less than the Lm98 million maturing on the same day. As a result, outstanding term deposits decreased from Lm147 million to Lm128 million.

The volume of interbank deals picked up in the week under review, increasing to Lm6 million compared to last week's Lm3.2 million. This week's transactions were effected in the two-week tenor at a rate of 2.97 per cent. This rate is marginally higher (by 0.37 basis points) than the previous weighted average rate of 2.9663 per cent transacted on January 5 in the same tenor.

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on April 23. The Treasury issued only Lm8 million in treasury bills in spite of the fact that the volume of bids submitted totalled Lm33 million. Since there were no maturing bills in the week under review, the outstanding bill total increased by Lm8 million, to Lm216.3 million from Lm208.3 million.

The primary rate for the 91-day issue was 2.9399 per cent. This rate was down marginally (by 0.44 basis points) from the previous three-month rate of 2.9443 per cent for bills issued on December 31. The latest rate represents a bid price of Lm99.2724 per Lm100 nominal. Today, the Treasury will receive applications for 364-day treasury bills to mature on January 28, 2005.

In the week under review, turnover in the secondary market amounted to only Lm47,000, down substantially from last week's total of Lm5,485,000.

The latest deals were transacted by the Central Bank which, in its role as market maker, effected net purchases of Lm15,000.