The Central Bank of Malta conducted a term-deposit auction on Friday, absorbing a total of Lm109.5 million from the banking system. This was Lm8 million more than the Lm101.5 million worth of term deposits that matured on the same day.
The net absorption was in response to an increase in liquidity in the banking system during the week. The rate resulting from the auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Central Bank conducts its term-deposit auctions.
Credit institutions started the new maintenance period (February 15 to March 14) with a surplus in the reserve deposit accounts that they are legally bound to hold with the Central Bank.
Liquidity in the banking system was further augmented by the sale of Lm3.3 million worth of Treasury bills by a collective investment scheme to the Central Bank in the secondary market and a Lm1.6 million contraction in currency in circulation.
These liquidity-boosting factors were partly offset by a negative clearing of cheques amounting to Lm2.1 million.
During the week, interbank activity decreased to Lm2.8 million from the Lm5.2 million recorded in the previous week. A total of seven deals were struck, of which five were in the overnight tenor at a weighted average interest rate of 3.22 per cent, up by four basis points from the previous week. Two other deals were struck in the one-week tenor, and at 3.23 per cent, five basis points lower than in the one-week deal concluded in the previous week.
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on May 19. From the Lm42.3 million worth of bids submitted, only bids for Lm1 million were accepted by the Treasury, reflecting the government's strong liquidity position. Since Lm1 million worth of bills matured during the week, the balance of Treasury bills outstanding remained unchanged from the previous week's level of Lm173.3 million.
The latest three-month rate resulting from the week's Treasury bill auction was 3.1764 per cent. This was 2.2 basis points lower than the previous 91-day rate for bills issued on February 3. The latest rate reflected a bid price of Lm99.2143 per Lm100 nominal.
Today, the Treasury will invite tenders for 91-day bills maturing on May 26.
Turnover in the secondary market for Treasury bills increased substantially, rising to Lm3.5 million, from the Lm0.9 million transacted in the previous week. The Central Bank, in its role of market maker, effected net purchases of Lm3.4 million during the week.