The level of liquidity characterising the banking sector rose in the week ended on Friday. This was mainly attributable to the fact that credit institutions started the week with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Further enhancing this surplus was the purchase by the Central Bank of Lm3.4 million worth of foreign currency against Maltese lira from credit institutions as well as Government payments of Lm2 million in direct credits mainly relating to dividend warrants and social security benefits. Partly mitigating these liquidity-increasing factors was an increase of Lm2.8 million currency in circulation.
Accordingly, on Friday, the Central Bank held its usual 14-day term deposit auction, whereby a total of Lm51 million was absorbed from the banking sector. Given that Lm53 million worth of term deposits matured on the same day, the level of outstanding term deposits held by credit institutions at the Central Bank decreased from Lm113 million to Lm111 million. The forthcoming issue of government bonds might have also influenced the credit institutions in not depositing all their excess funds. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3 per cent) at which the Central Bank conducts its term deposit auctions.
In the week under review no deals were transacted in the interbank market. This reflects the high liquidity across the whole banking sector.
In the primary market, the Treasury invited tenders for 182-day treasury bills to mature on February 4, 2005. Notwithstanding that the number of bids submitted amounted to Lm24.1 million, the Treasury did not issue any bills. Given that the volume of maturing bills amounted to only Lm0.3 million the outstanding stock of treasury bills dropped slightly, from Lm269.8 million to Lm269.5 million.
Today, the Treasury will receive applications for 91-day and 364-day treasury bills to mature on November 12, 2004 and August 12, 2005, respectively. Next week, the Treasury will hold an auction for 91-day bills to mature on November 19, 2004.
Turnover in the secondary market was subdued in the week under consideration. An aggregate of Lm350,000 was transacted as opposed to the Lm4 million traded the week before. All deals were effected by the Central Bank in its role as market maker.