The banking sector continued to be characterised by excess liquidity in the week ended May 14. The main liquidity-enhancing factor was the fact that credit institutions started the last week of the maintenance period (April 15-May 14) with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Reducing this surplus were net payments through the cheque clearing system of Lm2.7 million.
Consequently, on Friday the Central Bank of Malta held its usual 14-day term deposit auction to absorb the excess liquidity. During this auction, an aggregate of Lm40.7 million was absorbed from the banking sector. This was Lm6.3 million less than the Lm47 million worth of term deposits maturing on the same day.
Thus, outstanding term deposits held by credit institutions at the Central Bank fell from Lm135.1 million to Lm128.8 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95 per cent-three per cent) at which the Central Bank conducts its term deposit auction.
In the week under consideration, activity in the interbank market was relatively subdued due to the surplus liquidity prevailing across the whole banking sector. In fact, only one deal, amounting to Lm285,000, was effected. This was transacted in the overnight tenor at a rate of 2.85 per cent, unchanged from the previous overnight deal transacted on April 14.
In the primary market, the Treasury invited tenders for 91-day and 273-day treasury bills to mature on August 13, and February 11, respectively. Only Lm9 million bills were issued by the treasury, notwithstanding that the volume of bids amounted to Lm35.7 million. No treasury bills were allocated for the 91-day issue against the Lm12.6 million bids.
As for the 273-day auction, the Treasury issued Lm9 million in bills inspite of Lm23.1 million bids submitted. Given that total maturing treasury bills amounted to Lm10 million (which includes an amount of treasury bills that belonged to the Central Bank in its role as market maker), the outstanding bills' total fell by Lm1 million, from Lm260 million to Lm 259 million.
The primary treasury bill rate for the 273-day tenor (2.9024 per cent) fell by 5.11 basis points from that dealt on January 16. The latest rate reflects a bid price of Lm97.8753 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on August 20. Next week, the Treasury will hold an auction for 91-day bills to mature on August 27, 2004.
Activity in the secondary treasury bill market picked up somewhat in the week reviewed compared to the previous week. In fact, turnover amounted to Lm358,000. Deals effected outside the Central Bank totalled Lm189,000 and the bank effected net purchases of Lm121,000 in its role as market maker.