Excess short-term liquidity, that has characterised the banking sector since the beginning of the year, increased in the week under review. This surplus was mainly due to maturing term deposits amounting to Lm 73 million.
Furthermore, the credit institutions started the new maintenance period covering the period November 14 to December 15, 2002, with a cumulative excess in the reserve deposit accounts which they are required to hold with the Central Bank.
However, this was partly mitigated by the fact that the Central Bank sold foreign currency against the Maltese lira in the foreign exchange market to the tune of Lm7 million.
Accordingly, on Friday, the Central Bank of Malta invited tenders for a 14-day term deposit auction to absorb this liquidity. During this auction, Lm79.5 million were absorbed, Lm6.5 million more than the amount which matured during the same day.
As a result, outstanding term deposits increased from Lm108.4 million to Lm114.9 million. The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95-4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money.
In the week under review, only one interbank deal was transacted in the interbank market. This was transacted in the overnight tenor at a rate of 3.9 per cent, down from the previous overnight rate of 3.97 per cent.
In the primary market for treasury bills, the government invited tenders for 91-day treasury bills to mature on February 14, 2003. Applications amounted to approximately Lm29.3 million, with the Treasury issuing only Lm5 million worth of bills.
Since approximately Lm5 million treasury bills matured on the same day, outstanding bills remained at Lm195.9 million.
The weighted average rate resulting from this auction was 3.9001 per cent, down from the previous 91-day tenor of 3.9300 per cent. The latest rate corresponds to a price of Lm99.0370 per Lm100 nominal.
The yield resulting from this auction is approximately 0.05 of one percentage point lower than the Central Bank's absorption floor. This further reflects the excess liquidity prevailing in the banking system.
Today, the Treasury will invite tenders for 91-day treasury bills to mature on February 21, 2003. For the following week, the Treasury will receive applications for 91-day bills to mature on February 28, 2003.
During the week under review, turnover in the secondary market amounted to Lm57,000, significantly lower than Lm2.5 million of the previous week. Net purchases by the Central Bank amounted to Lm37,000 in its role as market maker.
No deals were effected outside the Bank.