Last Thursday, 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.
Excess liquidity in the banking sector continued to increase in the week ended on Friday. This increase was mainly due to a Lm11.4 million rise in the Central Bank's net foreign assets. Further enhancing this rise in liquidity were government payments of Lm1.9 million in direct credits mainly relating to pensions. Partly mitigating these inflows into the banking system was the net issue of treasury bills totalling Lm6 million and the fact that credit institutions started the week under review with an aggregate shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Consequently, the Central Bank conducted a 14-day term deposit auction on Friday, within the rate band of 2.95-3 per cent. During this auction, Lm58.5 million were absorbed, Lm8.5 million more than the Lm50 million maturing on the same day. As a result, outstanding term deposits held at the Bank increased from Lm155.5 million to Lm164 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.
As in the previous week, no interbank deals were transacted. This reflects the high level of excess liquidity which is prevailing across the whole banking sector.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on January 30, 2004. Only Lm8 million worth of treasury bills were issued in spite of the fact that the volume of applications submitted were slightly less than Lm28 million. Since total maturing treasury bills amounted to almost Lm2 million, outstanding treasury bills increased to Lm254 million from the previous Lm248 million.
The weighted average rate resulting from this auction was 2.9418 per cent. This rate was down marginally (by 1.3 basis points) from the previous three-month rate (2.9548 per cent) for bills issued on October 3. The new rate reflects a bid price of Lm99.2719 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on February 6, 2004. For the following week, the Treasury will again invite tenders for 91-day bills to mature on February 13, 2004.
Turnover in the secondary market amounted to only Lm48,000 in the week under review. These transactions were all effected by the Central Bank in its role as market maker, with the Bank being a net purchaser. No deals were transacted outside the Central Bank.