The banking system was characterised by a notable increase in excess liquidity during last week. The main liquidity-inducing factor contributing to this rise was the fact that credit institutions started the last week of the maintenance period (October 15 to November 14) with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.

Further enhancing this increase were government payments totalling Lm2 million in direct credits mainly relating to pensions and social security as well as Lm2 million worth of net maturing treasury bills.

Consequently, the Central Bank conducted a 14-day term-deposit auction on Friday, within the rate band of 2.95 per cent to three per cent. During this auction, Lm77.8 million were absorbed, substantially higher than the Lm58.5 million maturing on the same day.

As a result, outstanding term deposits held at the bank increased by Lm19.3 million, from Lm138.6 million to Lm157.9 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

No deals were transacted in the interbank market in the week under review. This further reflects the short-term liquidity prevailing across the whole banking sector.

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on February 13, 2004. The Treasury issued Lm4 million worth of treasury bills in spite of the fact that the volume of applications submitted was almost Lm23.6 million.

Since total maturing treasury bills amounted to Lm6 million, outstanding treasury bills decreased from Lm258 million of the previous week to Lm256 million.

The weighted average rate resulting from this auction was 2.9467 per cent. The rate fell slightly from the previous week's three-month rate of 2.9475 per cent. The new rate reflects a bid price of Lm99.2707 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day treasury bills to mature on February 20, 2004. For the following week, the Treasury will again invite tenders for 91-day bills maturing on February 27, 2004.

In the week under review, turnover in the secondary market declined to Lm71,000 from Lm617,000 of the previous week.

The Central Bank, in its role as market maker, effected net sales of Lm8,000. Deals outside the Bank totalled Lm51,000.