On Thursday the Governor of the Central Bank of Malta, following the meeting with the Monetary Policy Advisory Council, decided to leave the Bank's central intervention rate unchanged at three per cent.
The level of the banking sector's excess liquidity exhibited a marked increase in the week ended on Friday. Mainly contributing to this rise was the fact that credit institutions started the week reviewed with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Further enhancing liquidity were net maturing treasury bills totalling Lm4 million, net receipts through the cheque clearing system of Lm 2 million and government payments of Lm3.4 million in direct credits mainly related to Retirement and Treasury pensions. Partly mitigating these liquidity-inducing factors was the net sale by the Central Bank of foreign currency against Maltese lira to credit institutions amounting to Lm9.8 million and an increase of currency in circulation of Lm2.7 million.
Consequently, on Friday, the Central Bank, held its usual 14-day term deposit auction to absorb the excess liquidity in pursuance of the Bank's objective to foster stable money market conditions. During this auction, Lm47 million was absorbed from the banking sector, Lm30 million more than the Lm17 million worth of term deposits maturing on the same day. Thus, outstanding term deposits held by credit institutions at the Central Bank increased significantly to Lm140 million from Lm110 million.
This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95-3 per cent) at which the Central Bank conducts its term deposit auction.
In the week under consideration, interbank market activity picked up and a total of Lm10.7 million was transacted. Two deals were effected in the one-week tenor at a rate of 2.95 per cent which is 1.6 basis points lower than the previous weighted average rate of 2.9662 per cent.
Another transaction was dealt in the two-week tenor. The rate transacted (2.96 per cent) was one basis point lower than that transacted on February 23.
In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on July 30.
The Treasury allotted Lm14 million out of Lm35.2 million bids being submitted for this auction. Given that total maturing treasury bills amounted to Lm18 million, the outstanding bills' total fell by Lm4 million, from Lm273 million to Lm 269 million.
The primary treasury bill rate for the three-month auction was 2.9060 per cent, which increased marginally by 0.41 basis points from the previous rate of 2.9019 per cent. The latest rate reflects a bid price of Lm99.2807 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills and 182-day bills to mature on August 6 and November 5, respectively. Next week, the Treasury will hold auctions for 91-day and 273-day bills maturing on August 13, 2004 and February 11, 2005, respectively.
In the week under review, activity in the treasury bill secondary market was once again subdued. In fact, total transactions amounted to Lm383,000. All dealing was effected by the Central Bank which, in its role as market maker, was a net purchaser of Lm379,000.