The banking sector's level of short-term liquidity exhibited a marked increase in the week ended on Friday. This significant rise was mainly due to the fact that credit institutions started the week under review with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank and to the sale of foreign currency against Maltese lira by credit institutions to the Central Bank totalling Lm11.3 million. Other liquidity-inducing factors included a decrease in currency in circulation of Lm5.2 million and direct credits amounting to Lm5 million mainly relating to retirement pensions, dividends and children's allowances.
Consequently, on Friday, the Central Bank conducted its weekly 14-day term deposit auction. This auction was conducted within the rate band of 2.95-3.00 per cent, where Lm98 million were absorbed. This was Lm30.5 million higher than the Lm67.5 million maturing on the same day. As a result, outstanding term deposits increased notably, from Lm104.3 million to Lm134.8 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
In the week under review, the interbank market was inactive unlike the previous week. This reflects the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury invited tenders for 182-day treasury bills to mature on July 9. In spite of the fact that the volume of bids amounted to almost Lm30 million, the Treasury did not issue any treasury bills. Given that, in the week reviewed, there were no maturing treasury bills, the outstanding treasury bill total remained unchanged at last week's level of Lm210.3 million. The latest six-month treasury bill rate, dated October 17, was 2.9262 per cent.
Today, the Treasury will receive applications for 273-day treasury bills to mature on October 15. Next week the Treasury will again receive applications for 91-day treasury bills maturing on April 23.
In the week under review, turnover in the secondary market amounted to only Lm21,000. All these deals were transacted by the Central Bank which effected net sales of Lm3,000 in its role as market-maker.