The Central Bank conducted a term deposit auction on Friday, absorbing a total of Lm78.1 million, Lm0.3 million less than the amount that matured on the same day. The rate resulting from the auction was 3.45 per cent, being the floor of the new interest rate band (3.45-3.50 per cent) at which the Central Bank is now conducting its term deposit auctions.
On Thursday, May 25, following the monthly meeting of the Monetary Policy Advisory Council, the Governor decided to raise the Central Bank's central intervention rate by 25 basis points to 3.50 per cent.
Liquidity in the banking system remained practically unchanged during the week. The main liquidity-reducing factors were the purchase by credit and financial institutions of the entire net issue of Treasury bills, totalling Lm2.8 million, and a net increase in currency in circulation of Lm2.4 million.
Offsetting these factors were government direct credits, mainly related to pensions, amounting to Lm7.6 million, a positive net clearing of cheques of Lm2 million and the sale of Treasury bills in the secondary market totalling Lm1 million.
Interbank activity decreased, with turnover falling to Lm1.4 million during the week from Lm3.9 million in the previous week. Out of a total of five deals, four were effected in the overnight tenor at a weighted average interest rate of 3.21 per cent, six basis points lower than the interest rate on a similar deal struck in the previous week. These deals were carried out prior to the rise in the Central Bank's central intervention rate.
The other deal was transacted in the one-week tenor at a rate of 3.43 per cent, which was 25 basis points higher than the rate on a similar deal concluded on April 21. This deal was executed after the Central Bank's rate increase.
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on August 25. From the Lm23.8 million worth of bids submitted, tenders for Lm6.2 million were accepted by the Treasury.
Given that on the same day Lm15.3 million worth of bills matured, the outstanding balance of Treasury bills decreased by Lm9.1 million - from Lm176.1 million to Lm167 million.
The latest rate on 91-day Treasury bills was 3.2355 per cent, up by 0.1 basis points from the previous three-month rate, that on bills issued on May 5. The latest three-month rate reflected a bid price of Lm99.19,98 per Lm100 nominal.
Today, the Treasury will invite tenders for 91-day bills to be issued on June 2 and maturing on September 1. In the following week, the Treasury will accept bids for 90-day bills maturing on September 7.
Trading in the secondary market for Treasury bills was down from the previous week's level of Lm7.8 million to Lm1.2 million. All deals were transacted with the Central Bank in its role of market-maker.