Central Bank Monetary Operations

Liquidity in the banking sector increased sharply in the week under review.

The main factors contributing to this increase in liquidity were inflows of foreign currency amounting to Lm36.4 mainly related to the loan rescheduling of a public corporation, and maturing net Treasury bills of Lm12.4 million belonging to credit and financial institutions. Government credit transfers of Lm3.8 million also contributed to the increase in liquidity.

Partially offsetting this increase was the negative net clearing of cheques amounting to Lm2.2 million.

Consequently, a 14-day term deposit auction was conducted by the bank on Friday, 22 July within the rate band of 3.20 per cent – 3.25 per cent. During this auction, a total of Lm26 million was absorbed from the banking system. The same day saw the maturity of Lm7.3 million worth of reverse repos (injection operations) extended by the bank to credit institutions two weeks earlier.

As a result, the net balance held by credit institutions with the bank increased substantially, from Lm0.9 million in the previous week to Lm34.2 million.

The rate resulting from the latest term deposit auction was 3.2 per cent, being the floor of the term deposit interest rate band.

Interbank market

In the week under review, only one interbank deal, amounting to Lm0.5 million, was transacted. This low interbank activity reflects the excess liquidity prevailing across the banking system.

Treasury bill market

In the primary market, the government invited tenders for 28-day Treasury bills to mature on 19 August 2005. Of the Lm18.6 million worth of bids submitted, only Lm4.1 million were accepted by the Treasury, reflecting the strengthening in the Government’s cash flow due to the MGS primary issue which was offered during the week under review. Given that Lm19 million worth of bills matured, the outstanding balance of Treasury bills fell by Lm14.9 million from the previous week’s level of Lm215.9 million to Lm201 million.

The latest one-month rate resulting from this auction was 3.2579 per cent. This corresponds to a slight decrease of 0.3 basis points from the previous 28-day rate for bills issued on 24 June 2005.

This rate reflects a bid price of Lm99.7507 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day bills to mature on 28 October 2005.

Activity in the secondary market declined sharply, amounting to Lm0.2 million when compared to the Lm6.2 million of the previous week.

All trading was conducted with the bank in its role of market-maker.