The level of short-term liquidity in the banking system was slightly higher in the week ended on Friday compared to that of the previous week. The main reason for this increase 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. This higher excess liquidity was also spurred by Lm2 million net maturing treasury bills and a Lml.9 million decrease in currency in circulation. Partly mitigating these liquidity-increasing factors was a decrease in Central Bank of Malta's net foreign assets of Lm3.3 million, as well as net payments through the cheque clearing system amounting to Lm2.2 million.
Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday within the rate band of 3.2-3.25 per cent. During this auction, Lm69.5 million were absorbed. This was Lm3.5 million more than the Lm66 million maturing on the same day. As a result, outstanding term deposits held at the bank increased, from Lml71.7 million of the previous week, to Lm175.2 million. This auction was carried out at a rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
As in the previous week, no deals were transacted in the interbank market in the period under review. This reflects the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury received tenders for 182-day and 273-day treasury bills to mature on March 12 and June 11, 2004 respectively. For both these issues the amount of bids placed during the auctions by far exceeded the value of bills issued by the Treasury. Total volume of bids submitted for the 182-day auction amounted to Lm33.1 million, with the Treasury issuing just Lm5 million in treasury bills. Regarding the 273-day auction, the Treasury issued Lm15 million worth of treasury bills against a total volume of Lm34.1 million in bids. Given that total maturing treasury bills amounted to Lm22 million, the level of outstanding treasury bills dropped by Lm2 million, from Lm236 million to Lm234 million.
Primary market yields fell in the week under review. For the 182-day treasury bill issue, the weighted average rate decreased by 8.63 basis points from 3.1962 per cent (August 29) to 3.1099 per cent. This rate reflects a bid price of Lm98.4730 per Lml00 nominal. There was also a decline in the 273-day weighted average rate, which dropped from 3.1436 per cent (August 1) to 3.0835 per cent, that is by 6.01 basis points. The new rate reflects a bid price of Lm97.7457 per Lm100 nominal.
On Tuesday, the Treasury received applications for 364-day treasury bills to mature on September 17, 2004. For the following week, the Treasury will invite tenders for 91-day bills, which will mature on December 26.
In the week under review, trading in the secondary market amounted to only Lm55,000. These were all transacted by the Central Bank in its role as market maker. No deals were effected outside the Central Bank.