On Friday, the Governor of the Central Bank of Malta, after deliberating with the Monetary Policy Advisory Council of the Bank, lowered both the central intervention rate and the discount rate by 25 basis points from four per cent to 3.75 per cent. Thus, the absorption rate band, which the Central Bank applies in its weekly auctions of 14-day funds, was reviewed from 4-3.95 per cent to 3.75-3.70 per cent, while the injection rate band was reviewed from 4-4.05 per cent to 3.75-3.80 per cent.
In the week under review, excess liquidity in the banking system remained high albeit at a lower level than the week before. The latest liquidity surplus was mainly due to Lm45.5 million maturing term deposits, direct credits amounting to Lm11.4 million mainly associated to government salaries and pensions and net maturing treasury bills of Lm8.6 million.
This was partially offset by the fact that there was a net absorption of Maltese lira as a result of sales of foreign currency by the Central Bank to the banks totalling Lm11.3 million and the reduction of Lm6 million in the banks' balances at the Central Bank following the clearing of cheques issued by the public in favour of government departments mainly related to tax payments.
Accordingly, on Friday the Central Bank of Malta invited tenders for a 14-day term deposit auction to absorb this excess liquidity. During this auction, Lm47 million were absorbed, Lm1.5 million more than the amount which matured during the same day. As a result, outstanding term deposits increased from Lm179.3 million to a new high of Lm180.8 million. The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95-4.05 per cent at which the Central Bank conducted the week's auction prior to the cut in the Bank's central intervention rate.
No interbank deals were effected during the week. This reflects the surplus liquidity position of the banking system.
In the primary market for treasury bills, Government invited tenders for 91-day treasury bills to mature on March 21, 2003. Once again the volume of applications for treasury bills, at Lm68 million, was substantially higher than the amount accepted by the Treasury which issued only Lm16 million worth of bills. Since Lm19.4 million treasury bills matured on the same day, the level of outstanding treasury bills decreased by Lm3.4 million to Lm219.3 million.
The weighted average rate of the 91-day treasury bills continued to decline, reaching a new low of 3.6774 per cent per annum, reflecting a bid price of Lm99.0915 per Lm100 nominal. This rate was 5.74 basis points lower than the previous rate.
On Monday, the Treasury invited tenders for 91-day treasury bills to mature on March 28, 2003. On Monday, the Treasury will receive applications for 91-day bills to mature on April 4, 2003.
During the week under review, turnover in the secondary market amounted to Lm700,000. All deals were effected outside the Central Bank of Malta.