Following the monthly meeting with the Monetary Policy Advisory Council, the Governor of the Central Bank of Malta decided on Thursday, October 28, to leave the bank's central intervention rate unchanged at three per cent (see www.centralbankmalta.com/site/pr1.asp.
The banking sector exhibited a decline in liquidity in the week under review. The main liquidity-reducing factor affecting liquidity was the sale by the Central Bank of Lm13.5 million worth of foreign currency against Maltese lira to credit institutions as well as the net issuance of Lm8 million treasury bills.
Partly offsetting these outflows from the banking system was the fact that credit institutions started the week under review with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Furthermore there were net inflows into the banking system of Lm12.2 million emanating from the government account as well as government payments in direct credits of Lm2.4 million mainly relating to social security.
On Friday, the Central Bank held its usual 14-day term-deposit auction. An aggregate of Lm39.6 million was absorbed from the banking sector, Lm10.9 million less than the Lm50.5 million worth of term deposits which matured on the same day. Thus the level of outstanding term deposits held by credit institutions at the Central Bank decreased from Lm95 million to Lm84.1 million.
The decrease in the outstanding total was due to fact that credit institutions opted to deposit less 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 (2.95-3.00 per cent) at which the Central Bank conducts its term deposit auctions.
Interbank activity abated in the week under consideration. A total of Lm4 million were transacted, well below the Lm16 million dealt in the previous week.
Two deals were effected in the one-week tenor at a rate of 2.95 per cent, unchanged from the rate transacted on October 22.
In the primary market, the Treasury invited tenders for 28-day treasury bills to mature on November 26. The amount of bids submitted totalled Lm27 million, of which Lm22.5 million were accepted by the Treasury. Given that, in the week under review, there were Lm15 million worth of bills maturing (which included Lm0.5 million treasury bills which the Central Bank had purchased in the secondary market), the outstanding balance increased by Lm7.5 million, from Lm258 million to Lm265.5 million.
The latest one-month rate resulting from this auction was 2.9567 per cent, up marginally (by 0.13 basis points) from the previous one-month rate for bills issued on August 27. This rate reflects a bid price of Lm99.7737 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on February 4, 2005.
For the following week, the Treasury will receive tenders for 182-day bills maturing on May 13, 2005.
Trading in the secondary market for treasury bills declined to Lm52,000 from last week's level of Lm553,000. All trading was effected by the Central Bank in its role as market maker.