The Governor of the Central Bank of Malta, after deliberating with the Monetary Policy Advisory Council of the bank, decided to leave the central intervention rate unchanged at three per cent last Friday.
The banking system's level of excess liquidity exhibited a marked decrease in the week under review. The main liquidity-reducing factor was the fact that credit institutions started the week with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
This shortfall reflects withdrawals of deposits by the public to finance retail purchases of the new issue of Government Stocks.
Other outflows from the banking system included the sale of foreign currency against the Maltese lira by the Central Bank to credit institutions totalling Lm8.1 million, Lm11.1 million payments in respect of wholesale purchases of the new Malta Government Stocks, and net payments through the cheque clearing system amounting to Lm3.6 million.
Partly mitigating these outflows were direct credits totalling Lm3 million mainly relating to pensions and the sale of Lm3.4 million worth of treasury bills to the Central Bank.
On Friday, the Central Bank conducted its weekly 14-day term deposit auction within the rate band of 2.95 to three per cent. During this auction Lm42.5 million were absorbed, Lm35.3 million lower than the Lm77.8 million maturing on the same day. As a result, outstanding term deposits decreased from Lm145.8 million to Lm110.5 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.
The interbank market picked up in the week reviewed with five interbank deals being transacted totalling Lm12 million. One deal was transacted for a two-week term at a rate of 2.97 per cent. This rate is slightly higher (1.33 basis points) than the previous two-week weighted average rate dealt in October. Two transactions were effected in the one-week tenor at a weighted average rate of 2.9557 per cent, which is marginally higher (1.37 basis points) than the weighted average rate of 2.942 per cent transacted in October.
Moreover, two transactions were dealt in the three-week tenor at a rate of 2.97 per cent. The three-week tenor is quite uncommon. In fact, the previous deal effected in this tenor had been held in June 1999.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on February 27, 2004. Inspite of the fact that the total amount of bids was Lm15 million, no bills were issued by the Treasury. Thus, the latest 91-day treasury bills issued were those of November 21 which were at a rate of 2.9471 per cent.
Given that no treasury bills matured during the week reviewed, the outstanding bills' total remained at Lm255.2 million.
Today, the Treasury will receive applications for 91-day treasury bills to mature on March 5, 2004. For the following week, the Treasury will again invite tenders for 91-day maturing on March 12, 2004.
In the week under review, turnover in the secondary market amounted to Lm3,485,000. All these deals were transacted by the Central Bank which, in its role as market maker, effected net purchases of Lm3,439,000.