Higher turnover in secondary market
The banking system experienced a decrease in its short-term liquidity in the week under review. Major factors contributing towards this decline were: the sale of Maltese lira by credit institutions to the Central Bank against foreign currency, totalling Lm13.2 million; net payments by banks of Lm8.3 million, effected through the cheque clearing system; and other transfers to the government mainly relating to payments of provisional tax.
Moreover, currency in circulation expanded by another Lm1.2 million during the week, reducing further the liquidity of the banking system. These outflows of funds were partly mitigated by direct credits of Lm16.2 million, mainly in respect of government salaries, and purchases by the Central Bank of Lm10 million treasury bills in the secondary market.
Despite this reduction in short-term liquidity, on Friday the banking system still had surplus funds due to the maturity of Lm63 million worth of term deposits.
Accordingly, on the same day, the Central Bank conducted a 12-day term-deposit auction, in order to absorb this excess liquidity. In this auction Lm49 million were absorbed, Lm14 million less than the amount that matured on the same day.
As a result, the volume of term deposits held by credit institutions with the Central Bank decreased from Lm128.4 million to Lm114.4 million. The weighted average rate for these term deposits remained unchanged at 2.95 per cent, which is the floor of the interest rate band for the Central Bank's term deposit auction.
Turnover in the interbank market increased substantially to Lm16.4 million in the week under review, from Lm2 million in the previous week. One deal was transacted in the overnight tenor at 2.95 per cent, three basis points higher than the rate dealt in the previous week.
Another deal was transacted in the one-week tenor at 2.98 per cent, which was one basis point higher than the previous rate.
The bulk of the trading was conducted in the two-week term at a weighted average rate of 2.966 per cent. This rate was marginally lower than the latest rate in this tenor of 2.97 per cent, transacted earlier this month.
Another deal was struck for a three-week tenor at 2.98 per cent. As a result the three-week rate increased by one basis point from the 2.97 per cent dealt in November 2003.
In the primary market, the Treasury invited tenders for 90-day treasury bills to mature on March 18. However, no funds were raised by the Treasury in the primary market, despite receiving Lm34.6 million worth of bids. This reflects the strong cash position of the government during the week reviewed, which was aided by the fact that no treasury bills matured in the same week.
Thus, the 91 day treasury bill rate remained unchanged from the previous week at 2.9451 per cent. Similarly, the volume of outstanding treasury bills remained at the same level of Lm233.3 million.
Today, the Treasury will receive applications for 184-day treasury bills to mature on June 25, 2004. Next week the Treasury will receive applications for 93-day treasury bills to mature on April 2, 2004.
Trading in the secondary market rose considerably to Lm17 million in the week under review. The Central Bank, in its role as a market-maker, conducted net purchases of around Lm10 million. The rest of the transactions were transacted outside the bank.