Excess short-term liquidity continued to characterise the banking sector for the week ended September 27. This week's surplus was mainly due to maturing term deposits amounting to Lm54.5 million, net purchases of foreign currency by the Central Bank totalling Lm2.8million, direct credits of Lm10.4 million relating to payments of salaries and pensions, and a significant cumulative excess in the reserve deposit accounts which the banks are legally bound to hold with the Central Bank of Malta.
This liquidity was partially mitigated by net purchases of treasury bills in the primary market amounting to Lm6.6 million and from a reduction of Lm4.4 million in the banks balances with the Central Bank following the clearing of cheques.
Accordingly, an auction was held by the Central Bank on Friday, where the Bank invited tenders for 14-day term deposits in order to absorb the surplus liquidity in the market. During this auction Lm64.4 million were absorbed, Lm9.9 million more than the amount which matured during the same day.
As a result, outstanding term deposits increased from Lm87.5 million to Lm97.4 million. The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95-4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money.
As in the previous week, no inter-bank deals were transacted. This reflects the surplus liquidity across the whole banking sector.
Last week the Treasury invited tenders for 91-day treasury bills, to mature on December 27. Applications amounted to approximately Lm34.9 million, while the Treasury issued Lm13 million worth of treasury bills. Since Lm7 million treasury bills matured on the same day, the outstanding bills increased by Lm6 million to Lm192.4 million.
The weighted average rate resulting from this auction was 3.9639 per cent, which was marginally higher by 0.0016 of one percentage point than the previous week's 91-day rate of 3.9623 per cent. This rate corresponds to a price of Lm99.0214 per Lm100 nominal.
Today the Treasury will invite tenders for 182-day treasury bills to mature on April 4, 2003. For the following week, the Treasury will receive applications for 91-day bills to mature on January 10, 2003.
During the week under review, turnover in the secondary market amounted to Lm1,481,000 which was higher than last week's Lm198,000. This turnover consisted of a deal of Lm1,350,000 dealt outside the Central Bank and net purchases totalling Lm105,000 effected by the Central Bank in its role as a market maker.