Central Bank leaves rate at 3.25 per cent

The Central Bank of Malta on Tuesday left the central intervention rate unchanged at 3.25 per cent.

The decision was taken by Governor Michael C. Bonello at the end of the Monetary Policy Advisory Council.

Mr Bonello considered that there had been no developments since the previous council meeting to justify a change in the bank's monetary policy stance.

After remaining broadly stable in December, the bank's external reserves declined in January, reflecting the transfer to credit institutions of foreign currency balances belonging to government sinking funds and a strong demand for foreign exchange arising from oil purchases, he said.

Mr Bonello added that domestic market interest rates were virtually unchanged but euro yields rose.

Although interest rate differentials in favour of the Maltese lira narrowed as a result, they remained at a level that gave adequate support to the exchange rate.

The governor commented on the latest data on international trade, which showed that the merchandise trade gap remained substantial in November, despite an increase in exports.

This persistent shortfall was the main factor underlying the deficit on the current account of the balance of payments, which had to be carefully monitored.

Mr Bonello stressed the importance of renewed efforts to promote export-oriented activity and the need to improve the efficiency of the economy, particularly in the light of the additional burden being imposed by the rise in international oil prices.

He also noted that inflation, as measured by both the Retail Prices Index and the Harmonised Index of Consumer Prices, eased in December. Nevertheless, upward pressures on consumer prices persisted.

He also called for a closer examination of pricing practices in the markets for certain goods and services.

The council is due to meet again on February 28.