The level of surplus liquidity in the banking sector increased in the week ended on Friday. Credit institutions started the week under review with an excess in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.
Furthermore, government payments amounting to Lm2.1 million and a positive clearing of cheques totalling to Lm1 million also contributed to the increase in liquidity. Partially offsetting this liquidity was the net issue of Treasury bills amounting to Lm5.7 million and an increase in currency in circulation of Lm2.3 million.
Accordingly, on Friday, the Central Bank held its usual 14-day term deposit auction. An aggregate of Lm28.9 million was absorbed from the banking sector, Lm5.1 million more than the Lm23.8 million worth of term deposits that matured on the same day. Thus, the level of the banks' outstanding term deposits at the Central Bank increased from Lm55.1 million to Lm60.2 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3.0 per cent) at which the Bank conducts its term deposit auctions.
Interbank activity abated from the previous week's level of Lm4.2 million. Three deals were transacted in the week under review, amounting to Lm1.6 million. Two deals totalling to Lm1.1 million were effected in the one week tenor and another deal of Lm0.5 million was conducted in the overnight tenor. All interbank deals were transacted at a rate of 2.95 per cent, unchanged from the previous rates in both tenors.
In the primary market, the Treasury invited tenders for 273-day Treasury bills to mature on November 11. The amount of bids submitted totalled Lm26 million, from which the Treasury accepted Lm15 million. Given that Lm9 million worth of bills matured during the week under review, the outstanding balance of Treasury bills increased by Lm6 million, from Lm232.4 million to Lm238.4 million.
The latest nine-month rate resulting from this auction was 2.9876 per cent. This was 2.4 basis points higher than the previous 273-day rate for bills issued on October 8, 2004. This rate reflects a bid price of Lm97.8143 per Lm100 nominal.
Today the Treasury will receive applications for 91-day bills to mature on May 20. For the following week, the Treasury will invite tenders for 91-day Treasury bills to mature on May 27, and 182-day bills to mature on August 26.
Turnover in the secondary Treasury bill market amounted to Lm4.1 million, an increase of Lm0.6 million from the previous week's level of Lm3.5 million.
Two deals amounting to Lm3.9 million were transacted outside the Central Bank, while the Bank effected net purchases of Lm0.05 million in its role as market-maker.