The banking system's level of excess liquidity exhibited a marked decrease last week. This 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.

Further accentuating this decrease in short-term liquidity was the net issue of treasury bills totalling Lm4 million as well as Lm2.8 million net payments through the cheque clearing system.

Accordingly, the Central Bank conducted a 14-day term-deposit auction on Friday, absorbing Lm80.1 million, significantly lower than the Lm105.5 million maturing on the same day. As a result, outstanding term deposits held at the bank decreased by Lm25.4 million, from Lm164 million to Lm138.6 million.

This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95 to three per cent) at which the Central Bank conducts its term deposit auction.

Interbank dealing during the week reviewed amounted to Lm100,000. This was dealt in the 30-day tenor at a rate of 2.98 per cent. The last time that a one-month interbank deal was transacted was in June 2002 at a rate of four per cent.

This reduction in the 30-day interbank rate reflects the concurrent cut in the Central Bank's central intervention rate which during this period had decreased by one percentage point (100 basis points).

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on February 6, 2004. The Treasury issued Lm13 million worth of treasury bills, notwithstanding the fact that the volume of applications submitted were almost Lm30.2 million.

Since total maturing treasury bills amounted to Lm9 million, outstanding treasury bills increased to Lm258 million from the previous week's level of Lm254 million.

The weighted average rate resulting from this auction was 2.9475 per cent. This rate rose slightly, by half a basis point, from last week's three-month rate of 2.9418 per cent. The new rate reflects a bid price of Lm99.2705 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day treasury bills to mature on February 13, 2004. For the following week, the Treasury will again invite tenders for 91-day bills to mature on February 20, 2004.

Turnover in the secondary market amounted to Lm617,000 in the week under review. The Central Bank, in its role as market maker, effected purchases amounting to Lm117,000. Deals outside the Bank totalled Lm500,000.