The banking system's short-term liquidity remained at a high level during the week ended on Friday, albeit somewhat lower than the previous week. The reduction was due to the fact that credit institutions started the week under review with a shortfall in the reserve deposit account which they are legally bound to hold with the Central Bank.
Another factor contributing to this decline in liquidity was an increase in currency in circulation of Lm 3.8 million. Furthermore, there were net payments through the cheque clearing system amounting to Lm11.2 million.
Mitigating these liquidity-reducing factors was the sale of foreign currency against Maltese lira by credit institutions to the Central Bank totalling Lm6.4 million together with Lm7 million net maturing treasury bills.
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, Lm105.7 million were absorbed. This was Lm5.3 million lower than the Lm111 million maturing on the same day.
As a result, outstanding term deposits held at the Bank decreased, from Lm177 million of the previous week, to Lm171.7 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.
During the week under review, no deals were transacted in the interbank market. This reflects the excess liquidity across the whole banking sector.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on December 5. Total volume of bids submitted for this auction amounted to Lm48.7 million, with the Treasury issuing only Lm9 million worth of treasury bills. Given that maturing treasury bills amounted to Lm16 million, the level of outstanding treasury bills dropped by Lm7 million, from Lm243 million to Lm236 million.
After rising slightly since the beginning of August, the 91-day treasury bill rate edged down marginally during the week reviewed. In fact, the weighted average rate for this week's issue was 3.1825 per cent, reflecting a bid price of 99.2128 per Lm100 nominal. This rate is almost one basis point lower than the previous treasury bill primary rate for the same tenor issued on August 22.
Today, the Treasury will receive applications for both 182-day and 273-day treasury bills to mature on March 12, 2004 and June 11, 2004 respectively. Next Tuesday, the Treasury will invite tenders for 364-day bills, which will mature on September 17, 2004.
Turnover in the secondary market during the week under review amounted to Lm5,005,000. Deals transacted outside the Central Bank amounted to Lm4,900,000, while the Central Bank effected purchases totalling Lm105,000.