Central intervention rate unchanged

Following the monthly meeting with the Monetary Policy Advisory Council, the Central Bank Governor on Thursday decided to leave the Bank's central intervention rate unchanged at 3.25 per cent (see www.centralbankmalta.com).

Liquidity in the banking system increased in the week under review, when compared to the previous week. This increase was primarily due to the fact that institutions started the week under consideration with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.

Moreover, Lm19 million worth of Treasury bills matured during the week. Partially offsetting this increase in liquidity was the settlement by institutional investors of their allotment in the new issue of Malta Government Stocks totalling Lm26.4 million. (The retail part of the settlement of the new MGS issue was effected the previous week.)

Accordingly, the Central Bank held its usual 14-day term-deposit auction on Friday. An aggregate of Lm7 million was absorbed from the banking sector, Lm9.7 million less than the Lm16.7 million worth of term deposits that matured on the same day.

After this auction the Bank's outstanding claim on the credit institutions in respect of monetary operations rose from Lm10.3 million to Lm20 million. The rate resulting from the latest auction was 3.20 per cent, being the floor of the interest rate band (3.20- 3.25 per cent) at which the Bank conducts its term deposit auctions.

Interbank activity decreased from the previous week's level of Lm22.4 million to Lm16 million. Five deals were transacted in tenors ranging from one week to one month.

Two deals amounting to Lm9 million were conducted in the one-week tenor at a weighted average rate of 3.245 per cent, up by just 0.5 basis points from the last deal transacted the previous week. Another two deals amounting to Lm3 million each were conducted in the two and three-week tenors both at the rate of 3.24 per cent.

The 14-day rate was l.7 basis points lower than the previous week, while the 21-day rate remained unchanged. Another deal was transacted in the one-month tenor at a rate of 3.25 per cent, 27 basis points higher when compared to the previous 30-day deal transacted on March 18.

In the primary market, the Treasury invited tenders for 273-day Treasury bills to mature on February 24, 2006. The Treasury did not accept any of the Lm0.7 million worth of bids submitted.

Given that Lm19 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by the same amount, from Lm225.2 million to Lm206.2 million.

Today, the Treasury will receive applications for 91-day bills to mature on September 2. For the following week, the Treasury will accept bids for 91-day Treasury bills to mature on September 9 and 28-day Treasury bills to mature on July 8.

Trading in the secondary market picked up considerably in the week under review with turnover totalling Lm6.2 million compared to the previous week's level of Lm0.3 million.

All trading was effected by the Central Bank in its role of market-maker.