The level of excess liquidity in the banking system decreased substantially in the week under review. This was mainly due to a negative net clearing of cheques totalling Lm20.1 million and the issue of Treasury bills amounting to Lm12.2 million.

Furthermore, there was also an increase in currency in circulation of Lm1.5 million and the sale of Treasury bills in the secondary market of Lm1.1 million. Partially offsetting this decrease in liquidity were government direct credits of Lm2.8 million mainly related to pensions.

On Friday, the Central Bank offered the usual seven-day term deposit auction in order to absorb the excess liquidity. The amount absorbed from the banking sector was Lm49 million less than the Lm94 million which matured on the same day. As a result of the auction, the credit institutions' outstanding term deposits with the Central Bank amounted to Lm45 million.

The rate resulting from the latest absorption auction remained unchanged at 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Central Bank conducts its absorption auctions.

Interbank activity in the week under review amounted to Lm0.5 million, a decrease of Lm3.6 million from the previous week's level of Lm4.1 million. Two deals were transacted in the overnight tenor at a rate of 3.18 per cent, while the third deal was transacted in the two-month tenor at a rate of 3.28 per cent.

In the primary market, the Treasury invited tenders for 273-day Treasury bills to mature on September 22, 2006. From the Lm27.3 million worth of bids submitted, Lm12.2 million were accepted by the Treasury. Given that during the week under review there were no maturing bills, the outstanding balance of Treasury bills increased by the same amount from Lm170.3 million to Lm182.5 million.

The latest nine-month rate resulting from this auction was 3.3236 per cent. This was 9.7 basis points lower than the previous 273-day rate for bills issued on September 23. The latest rate reflects a bid price of Lm97.57,44 per Lm100 nominal.

On Tuesday, the Treasury received applications for 90-day bills to mature on March 30, 2006.

Turnover in the secondary market increased sharply from the previous week's low level of Lm0.9 million to Lm13.6 million.

All trading was effected by the Central Bank in its role of market-maker, transacting net sales of Lm0.8 million.