The banking sector experienced an increase in liquidity last week. Mainly inducing this rise 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.
Other liquidity-increasing factors were Lm4 million government payments in direct credits mainly relating to dividend warrants and childrens' allowances as well as the purchase by the Central Bank from credit institutions of Lm2.1 million worth of foreign currency against Maltese lira.
Partly offsetting these were deposit withdrawals of Lm3.9 million from the banking system as well as the net issuance of treasury bills of Lm2 million.
Accordingly, on Friday the Central Bank of Malta held its usual 14-day term-deposit auction to absorb the excess liquidity. During this auction, an aggregate of Lm49.9 million was absorbed from the banking sector, or Lm10.2 million more than the Lm39.7 million worth of term deposits maturing on the same day.
As a result, outstanding term deposits held by credit institutions at the Central Bank rose from Lm69.3 million to Lm79.5 million. 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 auction.
Activity in the interbank market was relatively subdued in the week under consideration, dropping from Lm12.5 million to Lm3.5 million. Transactions were dealt in the overnight and one-week tenors. The rates remained unchanged from the previous level of 2.9 per cent and 2.95 per cent respectively.
In the primary market, the Treasury invited tenders for 182-day treasury bills to mature on January 7, 2005. Aggregate bids for this auction amounted to Lm22.4 million while the Treasury issued Lm5 million worth of bills.
Given that the volume of maturing bills (91-day tenor) amounted to Lm3 million, the outstanding stock of treasury bills increased by Lm2 million, from Lm264.8 million to Lm266.8 million. The latest primary 182-day treasury bill rate at 2.9410 per cent gained 2.86 basis points over the previous rate of 2.9124 per cent dealt on June 11. The rate reflects a bid price of Lm98.5547 per Lm100 nominal.
Today, the Treasury received applications for 28-day bills to mature on August 13 - the first time the one-month tenor is being auctioned since July 19, 2002. For next week, the Treasury will invite tenders for 273-day bills to mature on April 22, 2005.
Secondary market activity declined substantially during the week under review, from Lm1.5 million to Lm130,000. All transactions were dealt by the Central Bank which, in its role as market maker, effected net purchases of Lm116,000.