Excess liquidity in the banking system decreased somewhat during the week under review. The decline was mainly due to a net issue of treasury bills of Lm7 million, with a large portion taken up by credit institutions. Net purchases of foreign currency by commercial banks from the Central Bank, totalling Lm 1.8 million, and payments of Lm1.3 million through the cheque clearing system contributed further to this decrease. Moreover, commercial banks started the new maintenance period October 15 - November 14 with a shortfall in their reserve deposit account.
On Friday, the Central Bank conducted a term deposit auction to absorb surplus funds, arising mainly from the maturity of Lm61 million term deposits. During this auction Lm50 million were absorbed, Lm11 million less than the amount that matured on the same day. As a result, the volume of outstanding term deposits declined to Lm137.5 million from Lm148.5 million. The weighted average rate resulting from this auction was 2.95 per cent, being the floor of the interest rate band for 14 day funds.
One deal was transacted in the interbank market amounting to Lm1.5 million. This was dealt in the one-week tenor at a rate of 2.95 per cent, which is two basis points higher than the latest rate of a similar tenor, transacted on October 3.
Unlike in the previous week, the government resorted to the primary market in order to raise short term funds, by offering a tender for 182-day treasury bills. Despite receiving Lm32.7 million worth of bids, the Treasury accepted only Lm7 million. As a result, given that no treasury bills matured during the week, the volume of outstanding treasury bills increased from around Lm249 million to almost Lm256 million.
The weighted average rate resulting from this auction was 2.9262 per cent, reflecting a bid price of 98.5619 per Lm100 nominal. Although this rate is 18.37 basis points below that of the latest issue of a similar tenor, auctioned on September 9, it must be noted that in the interim there was a reduction of 25 basis points in official interest rates.
Today, the Treasury will invite tenders for 91-day treasury bills to mature on January 23, 2004. For the following week, the Treasury will again receive tenders for 91-day treasury bills to mature on January 30, 2004.
Turnover in the secondary market was very low, totalling Lm81,000. All deals were conducted with the Central Bank in its role as a market maker, with the Bank being a net seller of bills.