During the week under review, the banking sector experienced an increase in excess liquidity. This was mainly due to the fact that the government issued Lm14 million less treasury bills than those maturing and paid a total of Lm2 million interest in respect of Malta government stock.
Furthermore, there was an increase in net foreign assets of the Central Bank totalling Lm2 million. This was partly mitigated by the fact that credit institutions started the week with a shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank, which coincided with an increase in currency in circulation of Lm1.9 million.
Consequently, a 13-day term deposit auction (due to the fact that Friday, August 15 is a public holiday) was conducted by the Central Bank last Friday, within the rate band of 3.2-3.25 per cent. During this auction, Lm77 million were absorbed, Lm11 million more than the amount maturing on the same day. As a result, outstanding term deposits held at the Bank increased from Lm122 million of the previous week, to Lm133 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.
One deal was transacted in the interbank market amounting to Lm1.8 million. This was dealt in the two-week tenor at a rate of 3.22 per cent, which is marginally lower than the latest weighted average rate of 3.2366 per cent transacted on June 27.
In the primary market, the Treasury received tenders for 91-day treasury bills and 273-day treasury bills to mature onOctober 31, 2003, and April 30, 2004, respectively. For the 91-day issue, approximately Lm2 million worth of bills were issued notwithstanding that the number of bids was much higher at Lm44 million. The number of bids for the 273-day issue totalled Lm51.3 million with the Treasury issuing only Lm18 million. Given that maturing treasury bills (91-day) amounted to Lm34 million, while the total amount of bills issued was Lm20 million, the level of outstanding treasury bills dropped by Lm14 million to Lm248.1 million from Lm262.1 million.
The weighted average rate for the 91-day bill issue was 3.1251 per cent, reflecting a bid price of 99.2269. This rate is 6.35 basis points lower than the last auction of 91-day bills held on July 25. The weighted average rate resulting from 273-day bill auction was 3.1436 per cent reflecting a bid price of 97.7028. This rate is 16.6 basis points below that of the last issue of June 27, which had preceded the latest rate-cut of 25 basis points by the Central Bank on June 24.
Today, the Treasury will receive applications for 91-day treasury bills to mature November 7. Next week the Treasury will invite tenders for 92-day bills to mature on November 14.
Turnover in the secondary market during the week reviewed amounted to Lm864,000. Deals transacted outside the Central Bank amounted to Lm800,000, while the Central Bank effected net purchases of Lm 40,000 in its role of market maker.