During last week, excess short-term liquidity in the banking system continued to increase. The week's surplus was mainly due to the maturity of Lm35.4 million term deposits and cumulative excess in the reserve deposit accounts which banks are legally bound to hold with the Central Bank. This liquidity was partially mitigated by unfavourable cheque clearings of Lm2.9 million and by net purchases of treasury bills in the primary market amounting to approximately Lm1.4 million.

As a result, the Central Bank conducted a term deposit auction on Friday. During this auction the bank absorbed Lm58 million, Lm22.6 million more than the amount that matured on the same day.

Accordingly, outstanding term deposits increased to Lm137.5 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.

No deals were transacted in the local inter-bank market in the week under review. Once again this reflects the surplus liquidity position of all the credit institutions.

In the primary market for treasury bills, the government invited tenders for 91-day treasury bills to mature on February 21, 2003. Applications amounted to approximately Lm53.8 million, while the Treasury issued only Lm20 million treasury bills. Since approximately Lm20.1 million worth of treasury bills matured on the same day, outstanding bills decreased marginally to Lm195.8 million.

The weighted average rate resulting from this auction was 3.8887 per cent, down by 1.14 basis points (or 0.0114 of one percentage point) from the previous 91-day tenor. The latest rate corresponds to a price of Lm99.0398 per Lm100 nominal. The yield resulting from this auction is 6.13 basis points lower than the Central Bank's absorption floor.

Today the Treasury will invite tenders for 91-day treasury bills to mature on February 28, 2003.

During the week under review, turnover in the secondary market amounted to Lm79,000. These were all purchases conducted by the Central Bank in its role as a market maker. No deals were transacted outside the Central Bank of Malta.