In the week ended on Friday, short-term liquidity in the banking sector continued to increase. The main factor inducing this rise was the fact that credit institutions started the last week of the reserve requirement maintenance period (February 15-March 14) with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.
Additional liquidity-enhancing factors included the purchase of Lm4.6 million worth of foreign currency against the Maltese lira by the Central Bank from credit institutions, the purchase of Lm2 million treasury bills by the Bank in the secondary market and government payments in direct credits of Lm1.1 million mainly relating to social security. Partly offsetting these inflows was the net purchase of Lm6 million treasury bills by institutional investors in the primary market.
Accordingly, a 14-day term deposit auction was conducted on Friday where the Central Bank absorbed Lm80.3 million from the banking sector. This was Lm8.7 million higher than the Lm71.6 million maturing on the same day.
Thus, outstanding term deposits held at the Bank rose from Lm149.1 million to Lm157.8 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95 per cent to three per cent) at which the Central Bank conducts its term deposit auction.
Interbank activity picked up in the week under review. Three deals, totalling Lm6.6 million, were effected in the overnight tenor at a weighted average rate of 2.9445 per cent. This overnight rate was slightly lower (0.55 basis points) than the previous rate of 2.95 per cent transacted on February 4 in the same tenor.
In the primary market, the Treasury invited tenders for 182-day treasury bills to mature on September 10. In spite of the fact that during this auction Lm31.1 million bids were submitted, the Treasury issued only Lm15 million treasury bills. Considering that Lm10 million bills matured (Lm1 million of the bills which matured were held by the Central Bank), the total treasury bills outstanding increased by Lm5 million, from Lm232 million to Lm237 million.
The primary six-month rate for this issue was 2.9212 per cent, which is marginally lower by half a basis point than the previous rate of 2.9262 per cent for treasury bills issued on October 17, 2003. The latest rate reflects a bid price of 98.5643 per Lm100 nominal.
Today, the Treasury will receive applications for 92-day treasury bills to mature on June 18. Next week the Treasury will invite tenders for 91-day treasury bills maturing on June 25, 2004.
In the secondary market for treasury bills, turnover exhibited a marked increase in the week under review. The volume of deals amounted to Lm2,752,000, significantly higher than last week's total of Lm981,000. The bulk of trading was effected by the Central Bank in its role as market maker. Transactions effected outside the Bank amounted to Lm300,000.