During the week under review, the banking sector was once again characterised by excess short-term liquidity, although significantly less than the previous week.
The liquidity was largely due to maturing term deposits amounting to Lm91 million. However, it was mitigated by the fact that the credit institutions started the week with a shortfall in the amount of funds which they are required to maintain in their reserve deposit account at the Central Bank and outflows resulting from unfavourable cheque clearing of Lm3.9 million.
Accordingly, on Friday, the Central Bank invited tenders for a 14-day term deposit auction to absorb the excess short-term liquidity in the market.
During this auction, Lm35.4 million were absorbed, Lm55.6 million less than the amount which matured during the same day. As a result, outstanding term deposits dropped from Lm164 million to Lm108.4 million.
The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95-4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money.
After being non-active for the past seven weeks, turnover in the inter-bank market picked up during the week under review. Deals transacted during the week amounted to Lm5.3 million, spread over two deals, both in the seven-day tenor, at a weighted average rate of 3.9574 per cent.
In the primary market for treasury bills, the government invited tenders for 91-day treasury bills to mature on February 7, 2003. Applications amounted to approximately Lm16.8 million, while the Treasury issued only Lm2 million worth of bills.
Since Lm0.5 million treasury bills matured on the same day, outstanding bills increased by Lm1.5 million to Lm195.9 million.
The weighted average rate resulting from this auction was 3.93 per cent, down marginally from the previous 91-day tenor of 3.9394 per cent. The latest rate corresponds to a price of Lm99.0297 per Lm100 nominal.
The yield resulting from this auction is 0.02 of one percentage point lower than the Central Bank's absorption floor. This further reflects the excess liquidity prevailing in the banking system.
Today, the Treasury will invite tenders for 91-day treasury bills to mature on February 14, 2003. For the following week, the Treasury will receive applications for 91-day bills to mature on February 21, 2003.
During the week under review, turnover in the secondary market amounted to Lm2.554 million, higher than Lm1.164 million of the previous week.
The Central Bank effected net purchases of Lm2.550 million in its role as market maker.
No deals were transacted outside the Central Bank.