Excess liquidity in the banking sector exhibited a significant decline during last week. This was mainly attributable 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 Central Bank of Malta.
There was also the net issuance of treasury bills in the primary market amounting to Lm11.6 million, an increase of Lm5.6 million in currency in circulation and net payments through the cheque clearing system of Lm3.9 million. Partially offsetting these were government payments in respect of retirement pensions and dividends of approximately Lm7 million, as well as a Lm1.7 million purchase of treasury bills in the secondary market by the Central Bank in its role as market maker.
On Friday, the Central Bank of Malta held its weekly 14-day term-deposit auction, absorbing Lm21 million from the banking sector. This was significantly lower than the Lm38 million worth of term deposits maturing on the same day. Thus, outstanding term deposits held by credit institutions at the Central Bank decreased by Lm17 million, from Lm134.7 million to Lm117.7 million.
This auction was carried out at a rate of 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.
Interbank market activity picked up significantly in the week under review, with the total volume dealt amounting to Lm21 million.
All deals were transacted in the one-week tenor and were effected at a weighted average rate of 2.9662 per cent. This rate was marginally higher (0.73 basis points) than the previous rate dealt in February.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on July 2. The volume of bids submitted during this auction amounted to Lm48.1 million which was far higher than Lm29 million bills actually issued by the Treasury.
The outstanding treasury bills' total increased by Lm10 million (from last week's Lm253 million to Lm263 million), given that maturing bills amounted to Lm19 million.
The primary treasury bill rate for this issue dropped slightly (0.04 basis points) from 2.9251 per cent to 2.9247 per cent. The latest rate reflects a bid price of 99.2761 per Lm100 nominal.
Today, the Treasury will receive applications for 92-day and 183-day bills to mature on July 9 and October 8, respectively. Next week the Treasury will receive tenders for 91-day treasury bills to mature on July 16.
There was a marked increase in secondary market activity in treasury bills in the week reviewed compared to last week's Lm85,000.
The volume of transactions amounted to Lm2,081,000, entirely effected by the Central Bank in its role as market maker.