The banking sector experienced a slight decrease in excess liquidity last week. This was mainly due to the net issue of treasury bills totalling approximately Lm7 million.
Notwithstanding this decrease, the volume of excess liquidity remained at a very high level. Consequently, a 14-day term deposit auction was conducted by the Central Bank of Malta, on Friday, where the bank invited tenders within its absorption band of 3.7-3.75 per cent.
During the auction, Lm66.3 million were absorbed, Lm3.7 million less than the amount maturing on the same day. As a result, outstanding term deposits decreased from Lm133 million to Lm129.3 million.
The weighted average rate resulting from this auction remained at 3.7 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
In the week under review, three interbank deals were transacted totalling Lm2.3 million. These deals were conducted in the overnight tenor at a weighted average rate of 3.6869 per cent.
This rate was 2.15 basis points lower than the previous overnight rate, reflecting the persistent high level of excess short term liquidity.
In the primary market for treasury bills, the government invited tenders for 182-day treasury bills to mature on September 12. Total demand for bills amounted to approximately Lm64.8 million, with the Treasury issuing only Lm22 million.
Since the volume of treasury bills issued was higher than the Lm15 million which matured, total outstanding treasury bills increased by Lm7 million to Lm242.2 million.
The weighted average rate resulting from this auction was 3.5682 per cent, reflecting a bid price of Lm98.2519 per Lm100 nominal. This yield was 23.16 basis points lower than the previous six-month rate of 3.7998 per cent, transacted on December 12, 2002, that is, prior to the last Central Intervention Rate cut.
It is also pertinent to note that, as a result of this decline, the six-month rate currently stands below the latest 91-day rate (3.6337 per cent) which was established the week before.
Today, the Treasury invites tenders for 91-day treasury bills to mature on June 20. Next Tuesday, the Treasury will invite tenders for 91-day treasury bills to mature on June 27.
During the week under review, turnover in the secondary market amounted to Lm488,000 which were effected by the Central Bank in its role as market maker. Net purchases totalled Lm480,000.