In the week ended January 30, the banking sector's excess liquidity rose significantly. This marked increase was mainly due to the purchase by the Central Bank of foreign currency against Maltese lira from credit institutions amounting to Lm11.7 million as well as Lm13.4 million in direct credits mainly relating to government salaries and Treasury pensions.
Partly offsetting these inflows into the banking sector was the purchase of Lm4.7 million treasury bills by credit institutions in the secondary market and net payments of Lm1.9 million through the cheque clearing system.
Accordingly, the Central Bank conducted a 14-day term-deposit auction on Friday, absorbing Lm70 million. This was substantially higher than the Lm49 million maturing on the same day.
Consequently, outstanding term deposits held at the Central Bank increased by Lm21 million, from Lm128 million to Lm149 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.
The Governor of the Central Bank, following a meeting with the Monetary Policy Advisory Council, decided to leave the Bank's central intervention rate unchanged at three per cent on Thursday, January 29.
The interbank market was inactive in the period under review, reflecting the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury invited tenders for 364-day treasury bills to mature on January 28, 2005. Notwithstanding the volume of bids submitted amounted to Lm31.9 million, the Treasury issued only Lm6 million in bills. Considering that Lm8 million treasury bills (91-day) matured in the week reviewed, the outstanding bill total decreased by Lm2 million, to Lm214.3 million from the previous week's Lm216.3 million.
The primary rate for this 364-day issue was 2.9296 per cent, which represents a bid price of Lm97.1614 per Lm100 nominal. The latest rate was 20.3 basis points below that of the last one-year bill issue of September 19, 2003 (3.1326 per cent), which reflects the impact of the cut in the central intervention rate of 25 basis points effected by the Central Bank on September 26, 2003.
Today, the Treasury will receive applications for 91-day treasury bills to mature on May 7. Next week the Treasury will again receive applications for 91-day treasury bills maturing on May 14.
Turnover in the secondary market exhibited a marked increase in the week reviewed. In fact, the total volume transacted was Lm4,758,000. These deals were all transacted by the Central Bank which effected net sales of Lm4,714,000 in its role as market maker.