On December 30, 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 (see www.centralbankmalta.com).
Surplus liquidity in the banking sector remained unchanged at a relatively low level in the week ended December 31 after experiencing a sharp decline in the previous week. Credit institutions started the week under review with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank.
Liquidity was reduced further following purchases of foreign currency against the Maltese lira from the Central Bank amounting to Lm3.7 million. There was also a negative clearing of cheques amounting to Lm3.1 million, and an increase in currency in circulation of Lm1 million, which further reduced the bank's liquidity. The decrease in liquidity was mainly offset by direct credits amounting to Lm11.7 million, related to government salaries and sales of Treasury bills to the Central Bank of Malta totalling Lm6 million, which provided further liquidity.
On Friday, the Central Bank held its usual 14-day term deposit auction. The Lm20 million worth of term deposits which matured on the same day were rolled over for another 14 days and the level of outstanding term deposits held by credit institutions at the bank was unchanged at Lm21 million. 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 to three per cent) at which the bank conducts its term deposit auctions. Interbank activity abated in the week under consideration as only one deal, to the tune of Lm3 million, was transacted. This deal was conducted for a two-week tenor at 2.97 per cent which remained unchanged from the previous week's rate.
In the primary market, the Treasury invited tenders for 28-day Treasury bills to mature on January 28. The amount of bids submitted totalled Lm11.7 million, none of which were accepted by the Treasury. Given that no bills matured during the week under review, the outstanding balance of Treasury bills remained unchanged for the second consecutive week at Lm245.4 million.
Today the Treasury will receive applications for 91-day bills to mature on April 8. For the next week the Treasury will invite tenders for 91-day bills to mature on April 15 and 182-day bills to mature on July 15.
In the week under review, secondary market turnover of Treasury bills decreased from the previous week's level of Lm10.6 million to Lm6 million. All trading was effected by the Central Bank of Malta in its role as market maker.