During the week ending August 14, the banking system exhibited a further reduction in excess liquidity. This was mainly due to the fact that credit institutions started the week under review with a significant shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank. This was partly mitigated by net maturing treasury bills totalling Lm6 million and the sale to the Central Bank of Lm2 million worth of treasury bills in the secondary market. Furthermore, the Central Bank's net foreign assets increased by Lm2 million.
Consequently, a 15-day term deposit auction was conducted by the Central Bank on August 14, within the rate band of 3.2 per cent-3.25 per cent.
During this auction, Lm37 million were absorbed. This was sharply lower than the Lm77 million maturing on the same day. As a result, outstanding term deposits held at the Bank decreased from Lm125 million of the previous week, to Lm85 million. This auction was carried out at a rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
One deal was transacted in the interbank market in the week under review. This was dealt in the one-week tenor at a rate of 3.2 per cent, unchanged from the previous month.
In the primary market, the Treasury received tenders for 92-day treasury bills maturing on November 14. Total volume of bids submitted for this auction amounted to Lm24 million, with the Treasury issuing only Lm6 million worth of Treasury bills. Given that maturing treasury bills (90-day) amounted to Lm12.1 million, the level of outstanding treasury bills dropped by Lm6.1 million, from Lm247.1 million to Lm241 million.
The weighted average rate for this issue was 3.1846 per cent, reflecting a bid price of 99.2037. This rate is marginally higher than the previous 91-day treasury bill primary rate.
Today, the Treasury will receive applications for 91-day treasury bills maturing on November 21. Next week the Treasury will invite tenders for 182-day bills, maturing on February 27.
Turnover in the secondary market during the week under review amounted to Lm2,009,000, transacted by the Central Bank in its role as market maker. The bulk of trading consisted of a single deal, whereby the bank effected a purchase of Lm2,000,000 treasury bills. No deals were effected outside the Central Bank.