The banking sector continued to experience excess liquidity in the week ended on Friday, albeit at a lower level than the previous week. This decline was mainly attributable to deposit withdrawals in connection with payments for the new issues of Malta government stock together with a decline in net foreign assets of about Lm1.7 million.

These liquidity reducing factors were partially mitigated by the fact that credit institutions started the week reviewed with an excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.

Furthermore, there was a decrease of currency in circulation of Lm3 million and the payment of Lm1.6 million in direct credits relating to dividend payments.

Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the rate band of 3.2-3.25 per cent. During this auction, Lm66 million were absorbed. As a result, outstanding term deposits held at the Bank decreased from Lm120.2 million of the previous week, to Lm118 million. This auction was carried out at a weighted average rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

Three interbank deals where transacted in the week under review. Two were dealt in the overnight tenor at a weighted average rate of 3.16 per cent. This rate was 39 basis points lower than the previous one dealt in April 2003 (3.55 per cent) in the same tenor.

However, one must note that during the interim period there were two central intervention rate cuts of 25 basis points each (on May 27 and June 24). The other deal was transacted in the one week tenor at 3.2 per cent. This rate reflects the same rate as that transacted on 11 July in the same tenor.

In the primary market, the Treasury received tenders for 91-day treasury bills to mature on October 17. However, unlike previous weeks, no bills were issued notwithstanding that the number of bids totalled Lm27.9 million. This was because of the government's favourable cash position following the new Malta government stock issue. Therefore, outstanding treasury bills remained at Lm271.1 million, given that no treasury bills matured on the same day.

Today, the Treasury will receive applications for 91-day treasury bills and 365-day treasury bills to mature on October 24, 2003, and July 24, 2004, respectively.

Turnover in the secondary market in the week under review decreased to Lm1.7 million from Lm7.5 million of the previous week. These deals were transacted by the Central Bank in its role of market maker. No deals were transacted outside the Central Bank.