On Wednesday, 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.
After declining for the past two weeks, liquidity in the banking system perked upwards in the week under review. Interest payments on a number of government securities totalling Lm3.3 million and pension payments, which amounted to Lm2.9 million, were the major factors behind this increase. Moreover, credit institutions started the week with a surplus in their reserve deposit account that they are obliged to hold with the Central Bank of Malta.
This increase in liquidity was partly offset by a number of outflows from the banking system towards the government. These resulted from the Lm3.4 million net issue of treasury bills, a large part of which was taken up by credit and financial institutions, and from a negative clearing of cheques that amounted to Lm3.7 million. The latter were mainly in connection with tax contributions.
Accordingly, on Friday, the Central Bank of Malta conducted a term deposit auction so as to absorb the excess liquidity arising from the maturity of Lm25 million worth of term deposits and the above factors. A total of Lm34.2 million bids were received, which were all accepted. As a result, the total amount of term deposits held with the Central Bank increased by Lm9.2 million, from Lm87.8 million to Lm97 million. The weighted average rate that resulted from the auction was 2.95 per cent, which represents the floor of the interest rate band applied in auctions for 14-day funds.
Interbank market trading was very subdued in the week under review, with only one deal amounting to Lm0.1 million being transacted. This deal was in the unusual tenor of three months, at a rate of 2.8 per cent.
In the primary market for treasury bills the government received tenders for 182-day and 364-day treasury bills to mature on April 1, 2005 and on September 30, 2005 respectively. There was heavy demand for both bills. For the 182-day bill, total bids amounted to Lm26.6 million, from which the government accepted Lm9 million. In the 364-day auction the total amount of bids received was slightly lower at Lm19.1 million. From these the Treasury accepted Lm12.6 million. Given that Lm18.2 million worth of bills matured on the same day, the total amount of outstanding treasury bills increased by Lm3.4 million to Lm255.95 million.
In this auction, primary rates for treasury bills edged slightly upwards. In fact, the 182-day rate increased by 2.46 basis points, from 2.941 per cent to 2.9656 per cent, while the 364-day rate increased marginally by 0.8 basis points, from 2.9675 per cent to 2.9755 per cent.
Today the Treasury will receive bids for 273-day bills to mature on July 8, 2005. In the following week, the Treasury will receive bids for 91-day bills to mature on January 14, 2005.
Trading in the secondary market for treasury bills totalled Lm1.04 million, which was similar to the amount transacted in the previous week. Of this, Lm0.8 million was transacted outside the Central Bank with the remaining Lm0.24 million being transacted with the Bank in its role as a market marker.