European Central Bank reduces minimum bid rate by 75 basis points

On Thursday, December 4, the Governing Council of the European Central Bank (ECB) reduced the minimum bid rate on its main refinancing operations by 75 basis points to 2.50 per cent with effect from Wednesday, being the settlement date for the week's Main Refinancing Operation (MRO). Accordingly, with effect from the same date, the ECB also reduced the rate on the marginal lending facility by 75 basis points to three per cent, and the rate on the overnight deposit facility by the same amount to two per cent. This leaves the corridor applicable to the ECB's standing facilities at 100 basis points around the interest rate on the MRO.

On the same day the Bank of England (BOE) cut its policy rate by 100 basis points to two per cent while the Sveriges Riksbank has lowered its repo rate by 175 basis points to two per cent. The Reserve Bank of New Zealand also cut the Official Cash Rate (OCR) by 150 basis points to five per cent in an attempt to ease global monetary conditions.

On Monday, December 1, the ECB announced its weekly Main Refinancing Operation (MRO). This attracted bids for €339.52 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 3.25 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 euro. This operation attracted bids for €13.88 billion, which amount was fully allotted at a fixed price of -8.23 swap points.

On Tuesday, December 2, the ECB, in conjunction with the US Federal Reserve, conducted an 84-day US dollar funding operation through collateralised lending. This attracted bids for $67.47 billion, which amount was fully allotted at a fixed rate of 1.42 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 $1.48 billion, which amount was fully allotted at a fixed price of -13.03 swap points.

On Wednesday, December 3, the ECB, in conjunction with the US Federal Reserve, conducted a seven-day US dollar funding operation through collateralised lending. This attracted bids for $75.11 billion, which amount was fully allotted at a fixed rate of 1.47 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 $0.79 billion, which amount was fully allotted at a fixed price of -2.28 swap points.

On the same day, the Eurosystem, in cooperation with the SNB, conducted another EUR/CHF foreign exchange swap, this time with an 84-day maturity. This operation attracted bids for €0.53 billion, which amount was again fully allotted at a fixed price of -84.15 swap points.

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on March 6, 2009 and 182-day bills maturing on June 5, 2009. Bids for €78.67 million were submitted for the 91-day bills, with the Treasury accepting €52.67 million, while bids for €13.80 million were submitted for the 182-day bills, with the Treasury accepting €8.88 million. Since €53.40 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €8.15 million to €366.65 million.

The yield resulting from the 91-day bills auction was 3.650 per cent, 30.8 basis points lower than that on bills with a similar tenor issued on November 14. The latest yield on these bills represented a bid price of 99.0858 per 100 nominal.

The yield resulting from the 182-day bills auction was 3.637 per cent, 5.66 basis points lower than that on bills with a similar tenor issued on November 21. The latest yield on these bills represented a bid price of 98.1945 per 100 nominal.

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

Treasury bill trading on the Malta Stock Exchange amounted to €3.53 million during the week, with the bulk of trades being conducted by the Central Bank of Malta in its role as market maker. Off-Exchange transactions amounted to €40,000.