Surplus liquidity in the banking system abated in the week ended on Friday. This decline was mainly due to the fact that credit institutions started the first week of the new maintenance period (August 15 to September 14) with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, there were Lm7.6 million outflows in respect of the settlement of Malta government stock purchases and payments relating to VAT and customs duties of Lm4.3 million. Partly offsetting these liquidity-reducing factors was the purchase of foreign currency by the Central Bank from credit institutions amounting to Lm8.7 million, net maturing treasury bills of Lm5.1 million as well as Lm2.8 million direct credits relating to retirement pensions.
To absorb liquidity, on Friday, the Central Bank held its usual 14-day term deposit auction, whereby a total of Lm25.7 million was absorbed from the banking sector. Given that Lm51 million worth of term deposits matured on the same day, the level of outstanding term deposits held by credit institutions at the Central Bank declined by Lm25.3 million, from Lm111.75 million to Lm86.45 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 Central Bank conducts its term deposit auctions.
Interbank market activity was restricted to two deals that were transacted in the overnight tenor totalling Lm2.3 million. The latest weighted average rate of 2.9113 per cent was 3.59 basis points lower than the previous one transacted on July 14, which however had been higher than normal levels.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on November 19. The Treasury accepted only Lm4.9 million out of an aggregate of Lm23 million worth of bids submitted. Given that total bills maturing amounted to Lm10 million, outstanding treasury bills declined by Lm5.1 million from Lm259.5 million to Lm254.4 million.
The 91-day rate resulting from this auction was 2.9601 per cent, unchanged from last week's rate for bills of the same tenor. This reflects a bid price of Lm99.2674 per Lm100 nominal. Today the Treasury will receive applications for 28-day bills to mature on September 24.
Turnover in the secondary market remained subdued in the week ended on Friday. Total transactions amounted to Lm754,000. Unlike the previous week, the bulk of trades transacted was effected outside the Central Bank, with the Bank effecting net sales of Lm48,000 in its role as market maker.