The banking sector's level of excess-liquidity continued to rise in the week ended on Friday. The increase was mainly due to the fact that credit institutions started the week under consideration with an excess in their reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, government payments of Lm2.6 million worth of dividend warrants and Lm1.8 million retirement pensions, continued to boost short-term liquidity in the banking sector. Partly mitigating these inflows was an increase of Lm3.5 million currency in circulation as well the net issue of treasury bills amounting to Lm2.9 million.
Consequently, on Friday, the Central Bank of Malta conducted a 13-day term deposit auction (one day shorter than the usual 14-day tenor since Friday, March 19, happens to be a public holiday), absorbing Lm77.5 million from the banking sector. This is Lm9.5 million higher than the Lm68 million maturing on the same day. Consequently, outstanding term deposits held at the Bank reached a high for 2004, rising from Lm139.6 million to Lm149.1 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95-3.0 per cent) at which the Central Bank conducts its term deposit auction.
In the week under review, turnover in the interbank market was lower compared to the previous week. Only one deal was transacted amounting to Lm1.75 million in the one-month tenor at rate of 2.82 per cent. There was a sharp drop of 16 basis points in the one-month rate compared to that transacted on November 3, 2003 (2.98 per cent). This decrease was largely due to the fact that the initiative was taken by the lending bank, and therefore the borrowing bank used a rate close to its published bid rate. On the other hand, when the initiative is taken by the borrowing bank, the reference rate used is normally close to the offer rate quoted by the lending bank.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on June 4. During this auction the volume of bids submitted far exceeded the total bills issued. In fact, the Treasury issued only Lm3 million treasury bills while bids amounted to Lm26.5 million. The outstanding total increased slightly from Lm229.1 million to Lm232 million given that there were only Lm0.1 million bills maturing.
The primary three-month rate for this issue was 2.93 per cent, 1.71 basis points lower than the previous rate of 2.9471 per cent for treasury bills issued on February 20. The latest rate reflects a bid price of 99.2748 per Lm100 nominal.
Today, the Treasury will receive applications for 182-day treasury bills to mature on September 10.
Next week the Treasury will invite tenders for 92-day treasury bills maturing on June 18.
There was a significant decline in secondary market activity for treasury bills. Turnover in the week under review amounted to Lm981,000, being substantially lower than last week's Lm2,694,000. All dealing was transacted by the Central Bank in its role as market-marker, which effected net purchases of Lm973,000.