Short-term liquidity rises again at end of maintenance period

The level of short-term liquidity of the banking system picked up strongly last week when compared with the situation during previous weeks.

The main factor inducing this increase in liquidity was the surplus amount that credit institutions accumulated in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta during the last week of the maintenance period.

To address this excess liquidity, the Central Bank of Malta held a 14-day term-deposit auction on Friday where an aggregate of Lm16.7 million was absorbed from the banking sector.

On the same day, Lm9 million worth of reverse repos matured and, therefore, the outstanding balance of the Central Bank vis-à-vis the credit institutions changed from a net claim of Lm16.3 million a week ago to a net debtor position (in the form of term deposits) of Lm9.4 million.

The latest auction was carried out at a rate of 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Bank conducts absorption operations through term-deposit auctions.

In the week under review, turnover in the interbank market increased substantially from the previous week's level of Lm1 million to Lm11.8 million.

Four deals collectively amounting to Lm9.4 million were conducted in the overnight tenor at the rate of 3.2625 per cent. This was 31.3 basis points higher than the previous overnight deal transacted on April 6.

The rise reflects the 25 basis points increase in the Central Bank's central intervention rate on April 8.

Another deal of Lm2.4 million was carried out in the one-week tenor at the rate of 3.24 per cent, increasing by one basis point from the previous one-week rate dealt during the previous week.

In the primary market, the Treasury invited tenders for 364-day Treasury bills to mature on May 12, 2006. The volume of bids submitted totalled Lm15.2 million, of which only Lm6.1 million were accepted by the Treasury.

Given that total bills maturing during the same week amounted to Lm10 million, the outstanding balance of Treasury bills decreased from Lm232.9 million to Lm229 million.

The latest one-year rate resulting from this auction was 3.5066 per cent. This was 21.5 basis points higher than the previous one-year rate for bills issued on April 1, 2005. This rate reflects a bid price of Lm96.6212 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day bills to mature on August 19.

In the following week, the Treasury will accept bids for 273-day Treasury bills to mature on February 24, 2006.

Turnover in the secondary Treasury bill market increased slightly to Lm0.3 million. All deals were conducted with the Central Bank of Malta in its role of market-maker.