The volume of excess liquidity held by the banking system increased in the week ended November 5. The main liquidity-enhancing factor was the fact that credit institutions started the week under review with an excess in the reserve deposit account which they are legally bound to hold with the Central Bank of Malta.
Furthermore, there were Lm11.4 million government payments in direct credits mainly relating to salaries. Partly offsetting these was the net issuance of Lm7.3 million treasury bills and Lm6.8 million outflows from the banking sector in respect of payments due to government.
There were also net payments through the cheque clearing system amounting to Lm4 million. On Friday the Central Bank of Malta held its usual 14-day term deposit auction. An aggregate of Lm52.5 million was absorbed from the banking sector, Lm8 million higher than the Lm44.5 million worth of term deposits which matured on the same day.
Thus, the level of outstanding term deposits held by credit institutions at the Bank increased from Lm84.1 million to Lm92.1 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 per cent) at which the Bank conducts its term deposit auctions.
Total interbank trading effected in the week under consideration totalled Lm1.5 million, which is Lm2.5 million lower than the previous week's level.
Two deals were transacted in the two-week tenor at a rate of 2.96 per cent, down marginally by 0.4 basis points from the previous two-week rate of 2.964 per cent dealt on July 2.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on February 4, 2005. The amount of bids submitted totalled Lm28.8 million, of which Lm16 million were accepted by the Treasury. Given that there were Lm8.7 million worth of bills maturing, in the week under review, the outstanding balance increased by Lm7.3 million, from Lm265.5 million to Lm272.8 million.
The latest three-month rate resulting from this auction was 2.9618 per cent, unchanged from the previous 91-day rate for bills issued on October 22. This rate reflects a bid price of Lm99.267 per Lm100 nominal.
Today, the Treasury will receive applications for 182-day bills to mature on May 13, 2005. For the following week, the Treasury will receive tenders for 91-day bills maturing on February 18, 2005. Trading in the secondary treasury bill market increased to Lm1.2 million from last week's level of Lm0.1 million. Trading was dominated by one deal, amounting to Lm1.1 million, transacted outside the Central Bank.