On Wednesday, October 8, the Governing Council of the European Central Bank (ECB) reduced the minimum bid rate on its main refinancing operations by 50 basis points to 3.75 per cent with effect from the Main Refinancing Operation (MRO) settling on October 15.
A similar rate cut was also delivered by the US Federal Reserve, the Bank of England, the Bank of Canada, the Sveriges Riksbank and the Swiss National Bank in a coordinated attempt to ease global monetary conditions.
On the same day, the ECB also announced changes to the tender procedures to be applied to the weekly MROs, whereby, as from this week's operation, participating counterparties will receive full allotment at the main refinancing rate of 3.75 per cent against eligible collateral. Under the previous arrangement, allotment was decided on the basis of an American auction. The latest change is intended to bring money market rates closer to the policy rate. Also, with effect from October 9 the ECB reduced the corridor applicable to standing facilities from 200 basis points to 100 basis points around the interest rate on the MRO. The rate on the marginal lending facility was reduced from 100 to 50 basis points above the interest rate on the MRO, i.e. currently to 4.25 per cent, and the rate on the overnight deposit facility was increased from 100 to 50 basis points below the interest rate on the MRO, i.e. currently to 3.25 per cent. The ECB announced that both the changes to the tender procedures and those to the standing facilities corridor will remain in place for as long as needed, and at least until the end of the first maintenance period of next year, on January 20.
On Monday, October 6, the ECB announced its weekly MRO. This attracted bids for €271.3 billion from euro area eligible counterparties, with the ECB allotting €250 billion, or 92.2 per cent of the total amount bid for. The marginal rate, which is the rate at which the total tender allotment is exhausted, was set by the ECB at 4.70 per cent, up five basis points from the marginal rate on the MRO of the previous week.
On the same day the ECB, in conjunction with the US Federal Reserve, conducted an 85-dayTerm Auction Facility (TAF), providing dollar liquidity to the market. This operation attracted bids for $88.7 billion, of which $20 billion was allotted at a fixed rate of 1.39 per cent, equivalent to the Marginal Rate on the Federal Reserve System's tender.
On account of the prevailing conditions in the international money markets, particularly the absence of a functioning interbank market, the ECB continued to launch overnight liquidity-absorbing fine-tuning operations. During the week two such operations were conducted before the rate cut, at a fixed rate of 4.25 per cent. Monday's operation had an intended volume of €220 billion. A total of €171.9 billion worth of bids was received from euro area eligible counterparties, and this amount was allotted in full. On Tuesday, October 7, another liquidity-absorbing Fine-Tuning Operation was conducted, with an intended volume of €197 billion. This time bids for €147.5 billion were received and this amount was allotted in full at the fixed rate of 4.25 per cent.
The ECB continued to provide US dollar funding via overnight operations on a daily basis throughout the week ending October 10. The marginal rate on these operations ranged between 0.5 per cent and 9.5 per cent.
As from Wednesday, October 8, the Eurosystem began to apply a multiple rate (i.e. American) auction method in its overnight dollar operations. Therefore, the auction allotment method used in these operations is now similar to the Eurosystem's euro credit operations.
On October 8, the ECB conducted a supplementary longer-term refinancing operation (LTRO) with a maturity of 182 days. Following a decision by the Governing Council, the allotment amount applied to this LTRO was increased by €25 billion to €50 billion. This operation attracted bids for € 113.7 billion. The marginal rate was set at 5.36 per cent.
On the same day the ECB also conducted an ad hoc liquidity-providing fine tuning operation with a maturity of six days. Bids for €24.7 billion were received and these were fully met at the new refinancing rate of 3.75 per cent, reflecting the ECB's announcement on the change in tender procedures referred to above.
In the domestic primary market for Treasury bills, the Treasury invited tenders for 273-day bills maturing on July 10, next year. Bids for €38 million were submitted, with the Treasury accepting €20.4 million. Since €46.8 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €26.4 million to €401.9 million.
The yield resulting from the auction was 4.709 per cent, 20.9 basis points lower than that on bills with a similar tenor issued on May 23. The latest yield represented a bid price of 96.5521 per 100 nominal.
Today the Treasury will invite tenders for 91-day bills maturing January 16, next year.
Treasury bill trading on the Malta Stock Exchange amounted to €2.7 million during the week, while off-Exchange transactions amounted to €140,000. All trades were conducted by the Central Bank of Malta in its role as market maker.