Liquidity in the banking system decreases after new Malta government stock issue

After picking up in the preceding week, banking system liquidity decreased during the week ended on Friday. This was mainly due to the strong demand for the new Malta government stock issues which were on offer between May 12 and 19. Other factors contributing to the liquidity reduction included VAT and CIR transfers. Furthermore, credit institutions had to repay maturing reverse repos with the Central Bank of Malta amounting to Lm7.3 million and purchased foreign currency against the Maltese lira from the Bank totalling Lm3.2 million.

Accordingly, on Friday, the Bank invited credit institutions to tender for a 14-day reverse repo auction whereby the bank would be prepared to inject funds into the banking system at a rate between a band of 3.25-3.30 per cent. The amount injected was Lm27 million at a weighted average rate of 3.2804 per cent. Since there was an outstanding balance in respect of term deposits of Lm16.7 million from the previous week's auction, the Bank ended up with an outstanding claim on the banks in respect of monetary operations amounting to a total of Lm10.3million.

Interbank activity in the week under review increased substantially from the previous week's level of Lm11.8 million to Lm22.4 million. Three deals totalling Lm13.4 million were carried out in the two-week tenor at a weighted average rate of 3.2568 per cent. This was 1.7 basis points higher than the previous 14-day deal transacted on April 29. Two deals amounting to Lm9 million were transacted in the one-week tenor at a rate of 3.2400 per cent which remained unchanged from the previous seven-day deal transacted in the previous week.

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on August 19. The amount of bids submitted totalled Lm6.8 million, of which Lm1.8 million were accepted by the Treasury. Given that Lm5.6 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm3.8 million, from Lm229 million to Lm225.2 million.

The latest three-month rate resulting from this auction was 3.2510 per cent. This was virtually unchanged from the previous 91-day rate for bills issued on May 6. The latest rate reflects a bid price of Lm99.1960 per Lm100 nominal.

Today, the Treasury will receive applications for 273-day bills to mature on February 24, 2006.

There was a substantial increase in the secondary Treasury market activity in the week under review when compared to the previous week's level of only Lm0.3 million. In fact, net purchases amounting to Lm3.1 million were transacted with the Central Bank of Malta in its role of market maker.