The Governor of the Central Bank of Malta, after deliberating with the Monetary Policy Advisory Council of the bank, has decided to leave the central intervention rate unchanged at 3.25 per cent.

Excess liquidity continued to prevail in the banking sector in the week under review, although at a higher level than the week before. This increase was mainly due to the fact that direct credits, relating to salaries, totalled Lm15.3 million and net maturing Treasury bills amounted to Lm9 million.

These liquidity increasing factors were partly mitigated by the fact that credit institutions started last week with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank. Furthermore there was a decrease in net foreign assets of Lm3.5 million and an increase in currency in circulation of Lm1.6 million.

Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the rate band of 3.2-3.25 per cent. During this auction, Lm56 million were absorbed, Lm4 million more than the amount maturing on the same day. As a result, outstanding term deposits held at the bank increased from Lm118 million of the previous week, to Lm122 million.

This auction was carried out at a weighted average rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

Unlike the previous week, only one interbank deal, to the tune of Lm2 million, was transacted in the period under review. This was dealt in the one-week tenor at an average rate of 3.2 per cent, which reflects the same rate as that transacted on July 18 in the same tenor.

In the primary market, the Treasury received tenders for 91-day treasury bills and 364-day treasury bills to mature on October 24, 2003, and July 23, 2004, respectively. Only Lm8 million worth of 91-day bills were issued in spite of applications totalling Lm32.6 million.

For the 364-day issue, total bids amounted to Lm28.9 million, with the Treasury issuing Lm10 million. Given that maturing treasury bills (91-day) amounted to Lm27 million, and that the total bills issued was Lm18 million, the level of outstanding treasury bills dropped to Lm262.1 million from Lm271.1 million.

The weighted average rate for the 91-day bill issue was 3.1886 per cent, reflecting a bid price of 99.2113. This rate is 6.52 basis points higher than the last auction of 91-day bills held on July 11. The weighted average rate resulting from 364-day bill auction was 3.2493 per cent, reflecting a bid price of 96.8613. Although this rate is 26.61 basis points below that of the last issue of April 11, it must be noted that in the interim there were two rate cuts of 25 basis points each (May 27 and June 24).

Today the Treasury will receive applications for 91-day treasury bills and 273-day bills to mature on October 31, 2003, and April 30, 2004, respectively. Next week the Treasury will invite tenders for 91-day bills to mature on November 7.

Turnover in the secondary market in the week under review totalled Lm1.5 million with the bulk of trading (Lm1.4 million) transacted outside the Central Bank.