Liquidity in the banking sector continued to decrease last week. Credit institutions started the week with a substantial shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Furthermore, there was a negative net clearing of cheques totalling Lm5 million and the net issue of new Treasury bills amounting to Lm1.6 million. Partially offsetting the decrease in liquidity were direct credits amounting to Lm13.1 million relating mainly to government salaries.

Due to this liquidity shortfall, the bank invited credit institutions to tender for a 14-day reverse repo auction whereby the bank would be prepared to inject funds into the banking system at a rate between a band of 3.25 per cent and 3.3 per cent. There were no bids forthcoming from the banking system for this reverse repo auction as the credit institutions decided to replenish their short position from alternative sources. Since there were no maturing term deposits, the outstanding balance for deposits held by the banks with the Central Bank remained at Lm11.5 million.

Interbank activity increased slightly from the previous week's level of Lm1.8 million to Lm3 million. In the week under review, one deal was transacted in the three-week tenor at a rate of 3.24 per cent.

This was 27 basis points higher than the previous three week deal transacted on March 15.

In the primary market, the Treasury invited tenders for 182-day Treasury bills to mature on October 21. The amount of bids submitted totalled Lm19.2 million, of which Lm16 million were accepted by the Treasury. Given that Lm15 million worth of bills matured during the week under review, the outstanding balance of Treasury bills increased by Lm1 million, from Lm242.9 million to Lm243.9 million.

The latest six-month rate resulting from this auction was 3.2208 per cent. This was 24.5 basis points higher than the previous 182-day rate for bills issued on March 24, reflecting the 25 basis points increase in the Central Bank central intervention rate on April 8. The latest rate reflects a bid price of Lm98.4194 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day bills to mature on July 29. For the following week, the Treasury will invite tenders for 91-day Treasury bills to mature on August 5.

Turnover in the Treasury bill secondary market amounted to only Lm0.1 million, in contrast to the previous week's high level of Lm16.2 million. All trading was effected with the Central Bank of Malta in its role of market-maker.