In the week under review, short-term liquidity in the banking sector continued to prevail. Factors contributing to this excess liquidity included government payments in direct credits of Lm13.3 million (mainly relating to salaries) and of Lm11.7 million in respect of maturing Malta Government Stocks (held by credit institutions).

Furthermore, the Central Bank of Malta effected Lm6.4 million purchases of foreign currency against Maltese lira from credit institutions. Outflows from the banking system included net payments through the cheque clearing system of Lm5.5 million.

Moreover, credit institutions started the week reviewed with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.

On Friday, the Central Bank of Malta held its usual 14-day term-deposit auction, absorbing Lm93 million from the banking sector. This was Lm16.3 million less than the Lm109.3 million worth of term deposits maturing on the same day.

Thus, outstanding term deposits held by credit institutions at the Central Bank decreased from Lm126.3 million to Lm110 million.

This decrease in the outstanding total was due to the fact that credit institutions opted to deposit less funds in order to meet potential commitments in the coming week. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95-3.00 per cent) at which the Central Bank conducts its term-deposit auction.

The interbank market was inactive in the week under review, which further reflects the surplus liquidity across the whole banking sector.

In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on July 23. The volume of bids submitted amounted to Lm48.4 million, which substantially exceeded the Lm7 million bills issued by the Treasury.

Given that total maturing treasury bills amounted to Lm8 million, the outstanding bills' total fell by Lm1 million, from Lm274 million to Lm 273 million.

The primary Treasury bill rate for the three-month auction was 2.9019 per cent, which dropped by 1.35 basis points from the previous rate of 2.9154 per cent. The latest rate reflects a bid price of 99.2817 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day bills to mature on July 30.

Turnover in the secondary market for treasury bills exhibited a marked decrease in the week under review. In fact, total transactions amounted Lm414,000. These were entirely purchases effected by the Central Bank in its role as market maker.