ECB continues to act to improve liquidity conditions

On Monday, September 29, the European Central Bank (ECB) announced its weekly Main Refinancing Operation (MRO). This attracted bids for €228 billion from euro area eligible counterparties, with the ECB allotting €190 billion, or 83.3 per cent of the total amount bid for. The marginal rate, which is the rate at which the total tender allotment is exhausted, was set by the ECB at 4.65 per cent, down by eight basis points from the marginal rate on the MRO of the previous week.

On the same day, the ECB conducted a special Longer-Term Refinancing Operation (LTRO) with a maturity of 38 days aimed at improving the overall liquidity position of the euro area banking system. In this LTRO, the ECB received bids for €141.7 billion and allotted a total of €120 billion, or 84.7 per cent of the total amount bid for. The marginal rate on this operation was set by the ECB at 4.36 per cent.

On Wednesday, October 1, on account of the prevailing conditions in the international money markets, particularly the absence of a functioning interbank market, the ECB launched an overnight liquidity-absorbing Fine-Tuning Operation. This operation was conducted at a fixed rate of 4.25 per cent and had an intended volume of €200 billion. A total of €173 billion worth of bids were received from euro area eligible counterparties, and these were allotted in full. On Thursday, October 2, another liquidity-absorbing fine-tuning operation was conducted, with the ECB allotting €200 billion at 4.25 per cent after receiving bids for €216.1 billion. On Friday, October 3, a further liquidity-absorbing fine-tuning operation was conducted with an intended volume of €220 billion. Bids for €193.8 billion were received, and these were allotted in full at the fixed rate of 4.25 per cent.

On Friday, the ECB also announced that as from yesterday until further notice, all banks that are currently eligible to participate in the standard MRO and LTRO operations will also be eligible to participate in Eurosystem Fine-Tuning Operations - which so far have been available to a fewer number of counterparties.

At the same time, the ECB continued to provide US dollar funding via overnight operations on a daily basis throughout the week ended October 3. The marginal rate on these operations ranged between 0.5 and 11 per cent. On Tuesday, September 30, due to end-of-quarter pressures and the acute shortage of dollar liquidity, two Term Auction Facility (TAF) operations were conducted, with the second operation having an intended volume of US$50 billion. This intended volume remained applicable to all the daily overnight TAF operations conducted by the ECB as from the beginning of October.

In the domestic primary market for Treasury bills, the Treasury invited tenders for 182-day bills maturing on April 3, 2009. Bids for €51.5 million were submitted, with the Treasury accepting €42.2 million. Since €22.4 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €19.8 million to €428.3 million.

The yield resulting from the auction was 4.552 per cent, 25.4 basis points lower than that on bills with a similar tenor issued in the previous week. The latest yield represented a bid price of 97.7505 per 100 nominal.

Treasury bill trading on the Malta Stock Exchange amounted to €5.2 million during the week, while off-Exchange transactions amounted to €4.2 million. All trades were conducted by the Central Bank of Malta in its role as market maker.

Today, the Treasury will invite tenders for 273-day bills maturing July 10, 2009.