Short-term liquidity in the banking system persisted in the week ended on Friday, although at a notably lower level than the previous week. This decline was mainly attributable to the fact that credit institutions started the maintenance period (November15-December 14) with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Other liquidity-reducing factors included net payments effected through the cheque clearing system totalling Lm4.4 million as well as the sale of foreign currency against the Maltese lira by the Central Bank to credit institutions totalling Lm3.5 million.
Partly offsetting these outflows from the banking system were payments by government in direct credits of Lm14 million which related mainly to salaries.
Consequently, the Central Bank conducted a 14-day term deposit auction on Friday, whereby Lm68 million were absorbed, Lm12.1 million lower than Lm80.1 million maturing on the same day. Accordingly, outstanding term deposits decreased from Lm157.9 million to Lm145.8 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 per cent) at which the Central Bank conducts its term deposit auction.
As in the previous week, the interbank market was inactive, reflecting the excess liquidity prevailing across the whole banking sector.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on February 20, 2004. Notwithstanding that the volume of applications totalled Lm28.2 million, the Treasury issued only Lm5.2 million worth of treasury bills. Since total maturing treasury bills amounted to Lm6 million, outstanding treasury bills decreased by Lm0.8 million, from Lm256 million of the previous week to Lm255.2 million.
The weighted average rate resulting from this auction rose very slightly to 2.9471 per cent from 2.9467 per cent of the previous three-month treasury bill auction. The new rate reflects a bid price of Lm99.2706 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on February 27, 2004. For the following week, the Treasury will again invite tenders for 91-day bills maturing on March 5, 2004.
In the week under review, turnover in the secondary market exhibited a marked increase. In fact total transactions amounted to Lm3,507,000 as against Lm71,000 of the previous week. The Central Bank, in its role as market maker, effected net purchases of Lm609,000. The bulk of trading, totalling Lm2,792,000 was effected outside the Central Bank.