Decline in short-term liquidity

Surplus liquidity in the banking system continued its downward trend in the week ended August 5. The main contributing factor was the net settlement by institutional investors of their allotment in the new issue of Malta Government Stocks totalling Lm23.2 million. Partially offsetting this decrease in liquidity was the sale of Treasury bills in the secondary market by credit institutions of Lm3.9 million, government direct credits totalling Lm2 million and net maturing Treasury bills amounting to Lm3 million.

On Friday, the bank held a 14-day term deposit auction. An aggregate of Lm8.5 million was absorbed from the banking sector, Lm17.5 million less than the Lm26 million worth of term deposits that matured on the same day. After this auction, the bank's outstanding term deposits decreased from Lm27.5 million to Lm10 million. The rate resulting from the latest auction was 3.2 per cent, being the floor of the interest rate band (3.20 per cent to 3.25 per cent) at which the bank conducts its term deposit auctions.

Interbank activity picked up in the week under review and six deals totalling Lm18.1 million were transacted. Rates remained broadly unchanged from previous levels.

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on November 4. Out of the Lm12.7 million worth of bids submitted, only Lm1.6 million was accepted by the Treasury, reflecting the government's strong cash position following the recent MGS issue. Given that Lm4.1 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm2.5 million, from Lm204.7 million to Lm202.2 million.

The latest three-month rate resulting from this auction was 3.2632 per cent. This was 1.2 basis points lower than the previous 91-day rate for bills issued in the previous week. The latest rate reflects a bid price of Lm99.1930 per Lm100 nominal.

Today, the Treasury will receive applications for 28-day bills to mature on September 9. Next week, the Treasury will accept bids for 91-day Treasury bills to mature on November 18.

Turnover in the secondary market increased considerably when compared to the Lm0.6 million transacted in the previous week and amounted to Lm4 million. All trading was effected by the Central Bank in its role of market-maker.