ECB reduces minimum bid rate by 50 basis points to 3.25%

On Thursday, November 6, the Governing Council of the European Central Bank (ECB) reduced the minimum bid rate on its main refinancing operations by 50 basis points to 3.25 per cent with effect from November 12, being the settlement date for this week's Main Refinancing Operation (MRO). Accordingly, the ECB reduced the rate on the marginal lending facility by 50 basis points to 50 points above the interest rate on the MRO, i.e. to 3.75 per cent, and the rate on the overnight deposit facility by 50 basis points to 50 points below the interest rate on the MRO, i.e. to 2.75 per cent. The new rates are to come into effect from tomorrow. This leaves the corridor applicable to the ECB's standing facilities at 100 basis points around the interest rate on the MRO.

A similar rate cut of 50 basis points was also delivered by the Swiss National Bank (SNB) and Denmarks' Nationalbank. Meanwhile, the Bank of England (BoE) lowered its official bank rate by 150 basis points to three per cent, while the Czech National Bank lowered the repo rate by 75 basis points.

On Monday, November 3, the ECB announced its weekly MRO. This attracted bids for €311.99 billion from euro area eligible counterparties, which amount was totally allotted, as pre-announced, at a fixed rate equivalent to the main refinancing rate of 3.75 per cent.

On the same day, the Eurosystem and the Swiss National Bank (SNB) conducted a EUR/CHF foreign exchange swap, with a seven-day maturity, to provide Swiss franc liquidity against the euro. This operation attracted bids for €15.04 billion, which amount was fully allotted at a fixed price of -6.84 swap points. Another EUR/CHF foreign exchange swap was conducted on Wednesday, November 5, this time, with an 84-day maturity. This operation attracted bids for €0.89 billion, which amount was again fully allotted at a fixed price of -60.22 swap points. These swap operations are intended to ease pressures in the interbank market for Swiss francs.

On Tuesday, November 4, the ECB, in conjunction with the US Federal Reserve, conducted an 84-day US dollar funding operation through collateralised lending. This attracted bids for $70.79 billion, which amount was fully allotted at a fixed rate of 1.60 per cent. In parallel with this operation, the Eurosystem also offered 84-day dollar liquidity through a EUR/USD foreign exchange swap operation which attracted bids for $0.65 billion, which amount was fully allotted at a fixed price of -26.55 swap points.

On Wednesday, November 5, the ECB, in conjunction with the US Federal Reserve, conducted a seven-day US dollar funding operation through collateralised lending. This attracted bids for $58.65 billion, which amount was fully allotted at a fixed rate of 1.53 per cent. In parallel with this operation, the Eurosystem also offered seven-day dollar liquidity through a EUR/USD foreign exchange swap operation which attracted bids for $0.96 billion, which amount was fully allotted at a fixed price of -3.61 swap points. On the same day, the ECB also announced a Special Term Refinancing Operation (STRO) with a maturity of 33 days. In this STRO, the ECB received bids for €20.42 billion, which amount was fully allotted. But whereas in previous auctions the STRO rate was determined on the basis of competitive bidding (i.e. by American auction), this week's STRO was conducted at a fixed rate equivalent to the ECB's main refinancing rate of 3.75 per cent. This change was intended to align money market rates more closely to the ECB's policy rate.

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on February 6, 2009. Bids for €62.20 million were submitted, with the Treasury accepting €50.20 million. Since €58.40 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €8.2 million to €372.99 million.

The yield resulting from the auction was 4.275 per cent, two basis points higher than that on bills with a similar tenor issued on October 31. The latest yield represented a bid price of 98.9309 per 100 nominal.

Today the Treasury will invite tenders for 91-day bills maturing on February 13, 2009.

Treasury bill trading on the Malta Stock Exchange amounted to €2.435 million during the week, with all trades being conducted by the Central Bank of Malta in its role as market maker.