Interest rates unchanged

The Central Bank yesterday left the central intervention rate unchanged at 4.25 per cent.

The decision was taken by the Governor, Michael C. Bonello, at the end of the monthly monetary policy advisory council meeting.

Mr Bonello concluded that there were no developments since the previous meeting necessitating a change in the monetary policy stance.

The slowdown in the underlying downward trend in the bank's external reserves observed last month continued into July, when a relatively small fall was recorded.

Seasonal inflows, reflected in lower net sales of foreign exchange by the bank to the banking system, contributed positively, while other factors, including the continued conversion of lira holdings into euro, had a negative impact on the external reserves. Interest rate differentials in favour of the lira widened, leading to more balanced trading in the secondary market for government bonds, Mr Bonello said.

In addition, bank deposits continued to grow robustly in June. The Governor pointed out, moreover, that the recent Ecofin decision clearing the way for Malta to adopt the euro on January 1, 2008 and confirming the central parity rate as the permanent conversion rate of the lira, had strengthened support for the exchange rate peg.

This notwithstanding, the Bank will continue to monitor closely developments in the financial markets.

Mr Bonello remarked that the monetary policy decision was taken against a backdrop of generally benign economic conditions. In particular, the monetary policy advisory council noted that the trade gap had narrowed in the first five months of the year, inflation fell again last month, activity in the tourism industry continued to improve and labour market conditions were stable, he said.

The council meets again on August 27.