Activity in the secondary market for Treasury bills remains high

The Central Bank of Malta conducted a seven-day term-deposit auction on Friday, absorbing a total of Lm78.4 million from the banking system, Lm1.8 million more than the Lm76.6 million that matured on the same day. The rate resulting from the auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Central Bank is currently conducting its term-deposit auctions.

The net absorption was in response to a further increase in liquidity in the banking system in the week under review. The main factors behind this were direct credits, mainly related to government salaries, amounting to Lm13.1 million, and the sale of Lm6.4 million worth of Malta Government Stocks in the secondary market by credit institutions to the Central Bank in its role of market-maker.

In addition, there was a contraction in currency in circulation of Lm3.5 million.

Partly offsetting these factors were a negative net clearing of cheques of Lm6 million, mainly related to VAT payments, and the sale of Lm1.6 million worth of foreign currency against the Maltese lira by the Central Bank to the credit institutions.

Interbank activity declined by Lm1.8 million during the week, with five deals amounting to Lm3.9 million being struck. Four deals were struck in the overnight tenor at a weighted average rate of 3.20 per cent, two basis points lower than the rate on a similar deal transacted the previous week. By contrast, one deal was struck in the three-month tenor at a rate of 3.45 per cent, which was seven basis points higher than the rate on a similar deal on April 21.

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on August 18. But from the Lm22.6 million worth of bids submitted, none were accepted, as the government's cash position had been boosted by the receipt of privatisation proceeds. Since Lm1 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by the same amount, from Lm177.1 million to Lm176.1 million.

Today, the Treasury will invite tenders for 91-day bills to be issued on May 26 and to mature on August 25.

Meanwhile, turnover in the secondary market for Treasury bills remained high, at Lm7.8 million, only slightly less than the Lm8.2 million of the previous week. All deals were transacted with the Central Bank in its role of market-maker.