No change in interest rates - December 30, 2005

The Central Bank yesterday decided to leave the central intervention rate unchanged at 3.25 per cent.

The decision was taken by the Governor at the end of the Monetary Policy Advisory Council meeting held in the morning.

The Governor considered that against a background of continued stability in the financial markets and in the absence of material changes in the relevant indicators, the current monetary policy stance remained appropriate. After the small, largely seasonal drop last month, the bank's external reserves were broadly stable through December to date.

At the same time, interest rate differentials between the Maltese lira and the euro experienced only minor variations, narrowing and widening slightly at the short and long ends of the yield curve, respectively, the Central Bank said. Thus, they remained at a level which, in the circumstances, lent adequate support to the exchange rate.

Looking ahead, the Governor pointed out that since the primary concern of monetary policy during the ERM II phase would continue to be the maintenance of exchange rate stability, the pace of convergence of domestic and euro interest rates in the run-up to the adoption of the euro would not only be influenced by developments abroad but also by domestic economic fundamentals.

The prompt implementation of planned structural reforms designed to raise productivity levels and to promote the expansion of the export sector would be an important prerequisite in this regard.

The latest trade and price data, which showed a further widening of the import/export imbalance in October and a higher rate of inflation in November, highlighted the need for a more concerted effort to contain costs and increase competitiveness, particularly at this time of growing international competition and more expensive imported inputs, especially oil and its derivatives, the Central Bank said.

The Monetary Policy Advisory Council meets again on January 31.