Liquidity in the banking system decreases

Excess liquidity in the banking system decreased last week after increasing in the previous week. Credit institutions started the new maintenance period ( Febraury 15 to March 14) with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.

Other factors contributing to this decrease in liquidity were the sale of foreign currency against the Maltese lira by the bank to credit institutions amounting to Lm2.5 million and the net issue of Treasury bills amounting to Lm4 million.

There was also a negative clearing of cheques amounting to Lm2.1 million, which further reduced liquidity.

Slightly offsetting this decrease in liquidity were government payments amounting to Lm0.5 million and a fall in currency in circulation of Lm1.7 million.

Accordingly, on Friday, the bank held its usual 14-day term-deposit auction. An aggregate of Lm20.5 million was absorbed from the banking sector, Lm10.8 million less than the Lm31.3 million worth of term deposits that matured on the same day. Thus, the level of the banks' outstanding term deposits at the Central Bank of Malta decreased from Lm60.2 million to Lm49.4 million.

The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3.00 per cent) at which the Bank conducts its term-deposit auctions.

Interbank activity increased substantially from the previous week's level of Lm1.6 million. In fact, in the week under review two deals amounting to Lm6 million were transacted. One deal amounting to Lm2 million was conducted in the overnight tenor at a rate of 2.95 per cent, unchanged from the rate dealt during the previous week.

The other deal, amounting to Lm4 million, was effected in the one-month tenor at a rate of 2.98 per cent, also unchanged from the latest one-month deal carried out on January 17.

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on May 20. The amount of bids submitted totalled to Lm18.5 million, of which the Treasury accepted Lm5.5 million.

Given that Lm2 million worth of bills matured during the week under review, the outstanding balance of Treasury bills increased by Lm3.5 million, from Lm238.4 million to Lm241.9 million.

The latest three-month rate resulting from this auction was 2.9675 per cent. This was 0.3 basis points lower than the previous 91-day rate for bills issued on February 4. This rate reflects a bid price of Lm99.2656 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day bills to mature on May 27 and 182-day bills to mature on August 26.

Turnover in the secondary Treasury bill market amounted to Lm1.6 million, a decrease of Lm2.5 million from the previous week's level of Lm4.1 million. One deal amounting to Lm1.5 million was transacted outside the Central Bank of Malta, while the bank effected net purchases of Lm0.03 million in its role as market-maker.