Interest rates cut by 25 basis points

The Central Bank of Malta yesterday cut the central intervention rate and the discount rate by 25 basis points to 3.75 per cent.

The decision was taken by bank governor Michael Bonello, in terms of the Central Bank of Malta Act, at the end of the Monetary Policy Advisory Council meeting held yesterday morning.

Following the announcement, HSBC and APS Bank announced changes to their interest rates.

The Central Bank said that the governor considered that a 25 basis-point reduction in official interest rates in the current circumstances was compatible with the maintenance of the exchange rate peg.

In fact, the continued absence of downward pressures on the peg was reflected in a further increase in the Central Bank's external reserves during December.

Since the council meeting of November 28, moreover, domestic money market interest rates had followed foreign short-term interest rates on a downward path.

As official interest rates abroad had also been lowered during the same period, this reduction brings official interest rates in Malta more in line with those of the basket currencies, the Central Bank said.

The persistence of high levels of liquidity in domestic financial markets also supported this decision.

The Central Bank added that the council's analysis of the latest information showed that, on the domestic economic front, little had changed since the previous meeting.

Although output had recovered during the current year, prospects for the economy going into 2003 would be influenced by the more pronounced downside risks to global economic growth.

Despite the expansionary stance of fiscal policy, therefore, domestic economic developments were unlikely to generate sustained pressures in the near term on inflation or the balance of payments and, hence, on the external reserves and the exchange rate, the Central Bank said.

The council is due to meet again on January 16.

The interest rate cut was seen by Labour finance spokesman Leo Brincat as proof that the economy was still sluggish.

"The fact that the Central Bank felt constrained to take this step will negatively affect those Maltese who have their money in the bank, and will lead to the inflation rate and the interest rate moving closer together," he said.

HSBC said in a statement that following the Central Bank's decision, the interest rate on its personal and commercial lending products will be reduced by 0.25 per cent as from Monday.

These products include home loans, commercial advances, Flexicredit, equity release loans and current accounts.

HSBC said that on the same date, it will be reviewing interest rates payable on savings and fixed deposit accounts with a view to lower rates.

A schedule of the interest payable on all products can be found at www.hsbcmalta.com.

APS Bank also announced changes to its interest rates as from December 23.

Existing commercial and personal loan customers, including APluS, Home Loans and AgriPluS, will benefit from this decision, as the bank will be applying the interest rate reduction of 0.25 per cent on all accounts, APS said.

The interest rates on current account balances, savings accounts and fixed deposit accounts opened or renewed on or after December 23 will be reduced by 0.25 per cent. The interest rate for the bank's three-day notice Bonanza Account will now be two per cent per annum.

Further details about these changes may be obtained by phoning or visiting any of the four APS Branches located at Ta' Qali, Attard (2141 9429), Floriana (2122 6644), Valletta (2125 0164) and Victoria, Gozo (2156 3512).