The Central Bank of Malta conducted its usual seven-day term-deposit auction on Friday, absorbing a total of Lm85.3 million from the banking system, Lm19.3 million more than the Lm66 million that matured on the same day. The rate resulting from the auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the Central Bank is currently conducting its term-deposit auctions.
The net absorption was in response to an increase in liquidity in the banking system during the week. Among the factors that contributed to this was the fact that credit institutions had started the new maintenance period (April 15 to May 14) with a surplus in their statutory reserve deposit accounts with the Central Bank. In addition, there were direct credits in relation to government salaries amounting to Lm12.9 million and a Lm4.9 million contraction in currency in circulation as well as interbank transactions with institutions that are not eligible for participation in the Central Bank's deposit auctions totalling Lm7.5 million.
Partially offsetting these factors were the purchase of Lm15.3 million worth of foreign currency against the Maltese lira from the Central Bank, a negative net clearing of cheques totalling Lm8.8 million and net purchases of Treasury bills by credit and financial institutions amounting to Lm4.4 million.
Interbank activity increased notably during the week, with five deals being struck and turnover rising to Lm9.5 million from the Lm2.4 million recorded the previous week. Two deals were struck in the overnight tenor at a weighted average rate of 3.22 per cent, practically unchanged from the rate on a similar deal transacted the previous week. One deal was struck in the one-week tenor at a rate of 3.18 per cent, which was four basis points lower than the rate on a similar deal the week before. Another deal was effected in the three-month tenor at a rate of 3.38 per cent, up by four basis points from the weighted average rate on similar deals concluded on March 17. The last deal was struck in the four-month tenor at a rate of 3.45 per cent, up by 15 basis points from the previous four-month deal, that struck on November 23, 2005.
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on July 21. From the Lm20.7 million worth of bids submitted, tenders for Lm4.7 million were accepted by the Treasury. Since Lm1 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm3.7 million, from Lm179.1 million to Lm182.8 million.
The latest three-month rate resulting from the week's Treasury bill auction was 3.2216 per cent, down by 1.7 basis points from the previous rate for 91-day bills, those issued on April 13. This reflected a bid price of Lm99.20,32 per Lm100 nominal.
Today, the Treasury will invite tenders for 91-day bills to be issued on April 28 and maturing on July 28.
Trading in the secondary market for Treasury bills rose to Lm6.6 million from the negligible amount traded the previous week. All deals were transacted with the Central Bank in its role of market-maker.