The Governor of the Central Bank of Malta, after deliberating with the Monetary Policy Advisory Council of the Bank, lowered the Central Intervention Rate by 25 basis points from 3.75 per cent to 3.5 per cent a week ago. Thus, the absorption rate band, which the Central Bank applies in its weekly auctions of 14-day funds, was reviewed from 3.7-3.75 per cent to 3.45-3.5 per cent, while the injection rate band was reviewed from 3.75-3.8 per cent to 3.5-3.55 per cent.
In the week under review, excess liquidity in the banking system increased further. The increase in liquidity was due to net maturing treasury bills totalling about Lm6.2 million and an increase in net foreign reserves of Lm 11.6 million. This was partially mitigated by an increase of bank notes in circulation of Lm3.5 million.
Accordingly, a 14-day term-deposit auction was conducted by the Central Bank on Friday. The Central Bank invited tenders within the rate band of 3.45-3.5 per cent.
During this auction, Lm85 million were absorbed, Lm21.5 million more than the amount maturing on the same day. As a result, outstanding term deposits held at the bank increased from Lm131.5 million of the previous week, to Lm153 million.
The weighted average rate resulting from the auction was 3.4665 per cent. This rate is slightly higher than the floor of the interest rate band at which the Central Bank conducts the term deposit auction.
In the week reviewed, there were no deals transacted in the interbank market. Once again, this reflects the excess liquidity prevalent across the whole banking sector.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on August 29. Demand for bills once more exceeded the total bills issued by the Treasury.
In fact, total bids amounted to Lm49.1 million, while the Treasury issued Lm10 million worth of bills. Since Lm16.2 million matured on the same day, the amount of treasury bills held by the non-government sector decreased by Lm6.2 million, from Lm266.3 million to Lm260.1 million.
The weighted average rate resulting from this auction was 3.5035 per cent, which is marginally lower than the previous rate of 3.5275 per cent. The new rate reflects a bid price of Lm99.1341 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on September 5. For the following week, the Treasury will invite tenders for 182-day treasury bills to mature on December12.
During the week under review no deals were transacted in the secondary market.