On Thursday, July 29, the Governor of the Central Bank of Malta, following the monthly meeting with the Monetary Policy Advisory Council, decided to leave the Bank's central intervention rate unchanged at three per cent.
Liquidity continued to characterise the banking sector in the week ended on Friday. Contributing to this liquidity was the sale of Lm4 million worth of treasury bills in the secondary market as well as government payments of Lm2.5 million in direct credits mainly relating to treasury pensions and social security payments.
Furthermore, the Central Bank purchased Lm1.8 million in foreign currency against Maltese lira from credit institutions. Partly offsetting these inflows into the banking sector, was the fact that credit institutions started the week reviewed with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Accordingly, on Friday, the Central Bank held its usual 14-day term deposit auction. During this auction, an aggregate of Lm60 million was absorbed from the banking sector, or Lm4.5 million lower than the Lm64.5 million worth of term deposits maturing on the same day.
As a result, outstanding term deposits held by credit institutions at the Central Bank dropped from Lm117.5 million to Lm113 million. It is worth noting that this decrease in the outstanding total was due to the fact that credit institutions opted to deposit fewer funds in order to meet potential commitments in the coming week. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95 per cent - three per cent) at which the Central Bank conducts its term deposit auctions.
The interbank market was inactive in the week reviewed, reflecting the surplus liquidity prevailing across the whole banking sector.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on October 29. During this auction, the Treasury accepted Lm15 million out of Lm26.5 million worth of bids submitted. Given that the volume of maturing bills amounted to Lm14 million the outstanding stock of treasury bills increased by Lm1 million, to Lm269.8 million from Lm268.8 million.
The primary three-month treasury bill rate resulting from this auction was 2.9479 per cent. The rate gained 4.15 basis points from the previous 2.9064 per cent traded on July 2. The latest rate reflects a bid price of Lm99.2704 per Lm100 nominal.
Today, the Treasury will receive applications for 182-day bills to mature on February 4, 2005. Next week, the Treasury will hold 91-day and 364-day treasury bill auctions to mature on November 12, 2004 and August 12, 2005 respectively.
Turnover in the secondary market picked up in the week under consideration. Total transactions amounted to approximately Lm4 million compared to the Lm512,000 traded the week before. All deals were effected by the Central Bank in its role as market maker.