The level of the banking sector's short-term liquidity increased in the week ended on Friday. The liquidity-enhancing factors contributing to this rise included the sale of treasury bills in the secondary market by banks of almost Lm5 million, the purchase of foreign currency against Maltese lira by the Central Bank from credit institutions totalling Lm3 million and Lm2.8 million dividend payments. Furthermore, there were net maturing treasury bills of Lm2 million. Partly mitigating this rise in short-term liquidity was 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.
Consequently, last Friday, the Central Bank conducted a 14-day term deposit auction. This auction was conducted within the rate band of 2.95-3.0 per cent, where Lm49 million were absorbed. This was Lm12.2 million higher than the Lm36.8 million maturing on the same day. As a result, outstanding term deposits increased from Lm134.8 million to Lm147 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
Interbank activity picked up somewhat in the week under review. In fact four interbank deals were transacted totalling Lm3.2 million. Three transactions were effected in the overnight term at a rate of 2.95 per cent, unchanged from the previous rate dealt on December 15. Another deal was transacted in the one-week tenor. The rate transacted was 2.95 per cent, marginally lower (by one basis point) than the 2.96 per cent dealt on December 31.
In the primary market, the Treasury invited tenders for 273-day treasury bills to mature on October 15, 2004. Notwithstanding that the volume of bids submitted totalled Lm38.3 million the Treasury issued only Lm19 million in bills. Given that in the week under review maturing bills totalled Lm21 million, outstanding treasury bills decreased by Lm2 million, that is from last week's Lm210.3 million to Lm208.3 million.
The primary rate for the 273-day issue was 2.9535 per cent. Although this rate dropped by 13 basis from the one dealt on September 12, 2003, it is pertinent to note that in the intervening period the Central Bank effected a 25 basis point cut in the Central Intervention Rate (CIR) on September 26, 2003. The latest rate represents a bid price of Lm97.8387 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on April 23, 2004. Next week the Treasury will again receive applications for 364-day treasury bills maturing on January 28, 2005.
In the week under review, turnover in the secondary market exhibited a marked increase. In fact total transactions totalled Lm5,485,000. The bulk of trading was effected by the Central Bank in its role as market maker with it effecting net purchases of Lm4,759,000. Only Lm200,000 were transacted outside the Central Bank.