Slight decrease in bank liquidity

On Friday, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm90.2 million from the banking system. This was Lm2 million less than the Lm92.2 million that matured on the same day. The interest rate that resulted from the auction was 4.20 per cent, which is the floor of the interest rate band at which the Bank is currently conducting its term deposit auctions.

The net injection of funds was in response to a slight decrease in liquidity in the banking system during the week under review. The factors contributing to this were an Lm8.4 million net issue of Treasury bills affecting credit institutions and a negative cheque clearing amounting to Lm1.7 million. Partly offsetting these factors was the fact that credit institutions began the week with a surplus in their statutory reserve deposit accounts with the Bank, direct credits totalling Lm2 million and a Lm0.9 million contraction in currency in circulation.

No interbank deals were reported during the week.

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on September 7.

Out of the Lm19 million worth of bids submitted, Lm10.2 million were accepted. Since Lm0.5 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm9.7 million to Lm191.8 million. The latest 91-day yield resulting from the week's Treasury bill auction was 4.327 per cent. This was 5.4 basis points higher than the rate on similar bills issued on June 1 and represented a bid price of Lm98.9181 per Lm100 nominal.Today the Treasury will invite tenders for 28-day and 91-day bills maturing respectively on July 13 and September 14. The following week the Treasury will invite tenders for 272-day bills maturing on March 20, 2008.

Treasury bill trading on the Malta Stock Exchange amounted to Lm 914,000, while off exchange transactions amounted to Lm52,000. Bank involvement in Treasury bill trading amounted in total to Lm78,000.