On Thursday, the Governor of the Central Bank of Malta, following the monthly meeting with the Monetary Policy Advisory Council, decided to leave the Bank's Central Intervention Rate unchanged at 3.25 per cent (see www.centralbankmalta.com ).
Whereas during the previous week, the Central Bank conducted an injection (reverse repo) operation, in the week reviewed the Bank carried out an absorption operation.
Liquidity in the banking sector continued its downward trend. This was due to the fact that credit institutions started the week under review with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Bank. Furthermore, there was also the net issue of new Treasury bills amounting to Lm8.2 million, together with a negative clearing of cheques of Lm4.8 million.
Consequently, in the 14-day term deposit auction held by the Bank on Friday only Lm1 million was absorbed from the banking sector, well below the Lm23.7 million worth of term deposits that matured on the same day. After this auction the Bank's position vis-à-vis the credit institutions in respect of monetary operations switched from a net debtor balance of Lm17.7 million the week before to a net creditor balance of Lm5 million. The rate resulting from the latest auction was 3.2 per cent, being the floor of the term deposit interest rate band.
In the week under review, four interbank deals totalling Lm6 million were transacted, a decrease of Lm10.3 million from the previous week's level of Lm16.3 million. Interbank rates remained broadly unchanged during the week.
In the primary market, the Treasury invited tenders for 28-day and 273-day Treasury bills to mature on July 22, 2005 and March 24, 2006, respectively. For the 28-day bill, the amount of bids submitted totalled Lm10 million, while for the 273-day auction, bids amounted to Lm11.7 million. The Treasury once again accepted all the bids. Given that Lm13.5 million worth of bills matured during the week under review, the outstanding balance of Treasury bills increased by Lm8.2 million, from Lm207.1 million to Lm215.3 million.
The latest one-month rate resulting from this auction was 3.2605 per cent, which is only 0.7 basis points higher than the previous 28-day rate for bills issued on June 10. On the other hand, the latest nine-month rate was 3.4748 per cent, sharply up by 48.7 basis points given that the previous 273-day bills had been issued on February 11. These rates reflect a bid price of Lm99.7505 and Lm97.4669 respectively per Lm100 nominal.
Today, the Treasury will receive applications for 28-day Treasury bills to mature on July 29 this year and 364-day Treasury bills to mature on June 30, 2006. For the following week, the Treasury will accept bids for 91-day Treasury bills maturing on October 7 this year.
Trading in the secondary Treasury bill market followed the low trend of the last few weeks and amounted to only Lm0.2 million. All trading was effected with the Bank in its role of market-maker.