Central intervention rate left unchanged

The Central Bank of Malta yesterday left the central intervention rate unchanged at three per cent.

At a Monetary Policy Advisory Council meeting bank governor Michael Bonello first recalled that the bank's primary objective in conducting monetary policy was price stability, which is widely acknowledged to be a key foundation for securing sustained improvements in economic performance and living standards in the long term.

The bank sought to achieve this objective by pegging the Maltese lira to a basket of currencies of low-inflation countries.

Referring to the interest rate decision, Mr Bonello noted that, at their current level, official interest rates provided adequate support to the exchange rate peg.

He said that the drop in the bank's external reserves in October and November reflected the usual seasonal pattern, which was exacerbated by a number of other factors.

Domestic money market interest rates remained unchanged, which contributed to the stability of the premium on the Maltese lira, while investors' response to the latest issue of long-term government debt securities was positive.

Turning to the performance of the domestic economy, the governor observed that, as shown by the latest GDP figures, output growth continued to be weak, driven by moderate expansion in domestic demand.

At the same time, inflation decreased slightly and there were some positive signs from the labour market.

Mr Bonello also welcomed the further fiscal consolidation envisaged in the budget for 2005, as well as the measures that aim to increase flexibility and improve productivity across the economy.

However, he stressed, a greater emphasis must be placed on permanent cuts in general government expenditure as part of the deficit reduction exercise.