The level of short-term liquidity in the banking system declined during the week under review, although it still remained at high levels. The major factor inducing this decrease in liquidity was a Lm5 million net purchase of treasury bills from the primary market by credit and other financial institutions. Customs payments of around Lm2 million and a negative clearing of cheques, which amounted to Lm1.7 million, reduced the liquidity further. Moreover credit institutions, on average, started the new reserve deposit maintenance period September 15 to October 14 with a shortfall in the reserve deposit account, which they are required to hold with the Central Bank. A slight contraction in currency in circulation of Lm1 million, which implies that credit institutions deposited currency with the Central Bank, injected some liquidity into the system.
Nevertheless, on Friday, the banking system had excess funds over and above the reserve deposit requirement that it is obliged to hold with the Central Bank. Consequently the Central Bank offered a 14-day term deposit auction so as to absorb this extra liquidity. A total of Lm25 million worth of bids were received, which were all accepted. This was Lm9.7 million lower than the amount of term deposits that matured on the same day. As a result, the volume of term deposits held with the Central Bank decreased from Lm112.6 million to Lm102.9 million. The weighted average rate on these deposits remained unchanged at 2.95 per cent, which represents the floor of the narrow band used in auctions for 14-day money.
Two interbank deals were transacted in the week under review amounting to Lm1.87 million. Both transactions were conducted in the overnight tenor. The weighted average rate was 2.8307 per cent, or seven basis points lower than the previous week's rate.
In the primary market, the government invited bids for 91-day treasury bills to mature on December 17. From the Lm33 million worth of bids submitted, only Lm15 million were accepted.
This was Lm5 million lower than the amount of treasury bills that matured on the same day.
Consequently, the level of outstanding treasury bills declined to Lm247.5 million.
The weighted average rate resulting from this auction was 2.9605 per cent, marginally higher than the previous rate of 2.9589 per cent set on September 3. The latest rate represents a bid price of Lm99.2673 per Lm100 nominal.
Yesterday, the treasury received bids for 364-day treasury bills to mature on September 23, 2005.
The latest treasury bill of a similar tenor was issued over a month ago on August 13. In the following week, the treasury will invite bids for two tranches of treasury bills: 182-day bills maturing on April 1, 2005, and 364-day bills maturing on September 30, 2005.
Turnover in the secondary market remained low, amounting to just Lm0.19 million. All deals were conducted with the Central Bank in its role as market marker.