On Thursday, August 26, the Governor of the Central Bank of Malta, following the monthly meeting with the Monetary Policy Advisory Council, decided to leave the Bank's Central Intervention Rate unchanged at three per cent.
The banking system's liquidity persisted in the week ended on Friday. The main determinant of the liquidity surplus was the fact that credit institutions started the week under review with an excess in their reserve deposits accounts which they are legally bound to hold with the Central Bank. Furthermore, there was the sale of Lm4.8 million worth of foreign currency by credit institutions to the Central Bank as well as payments in direct credits totalling Lm2.1 million in respect of social security payments. Partly offsetting these liquidity-enhancing factors was an outflow of Lm1.2 million in respect of the net issuance of treasury bills.
To absorb liquidity, on Friday, the Central Bank held its usual 14-day term deposit auction, whereby a total of Lm59.1 million was absorbed from the banking sector. Given that Lm60.75 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 Lm1.65 million, from Lm86.45 million to Lm84.8 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 per cent) at which the Central Bank conducts its term deposit auctions.
Interbank activity was down by Lm1.1million in the week reviewed. Only one overnight deal of Lm1.2 million was effected at 2.9 per cent, marginally down from last week's 2.92 per cent.
In the primary market, the Treasury invited tenders for 28-day treasury bills to mature on September 24. The Treasury accepted Lm3 million out of a total of Lm10.5 million worth of bids submitted. Given that total bills maturing amounted to approximately Lm1.8 million, outstanding treasury bills increased by Lm1.2 million from Lm254.4 million to Lm255.6 million.
The 28-day rate resulting from this auction was 2.9554 per cent, edging-up slightly (by half a basis point) over the latest one-month rate transacted on July 16. This reflects a bid price of Lm99.7738 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on December 3. For the following week the Treasury will receive tenders for 273-day bills to mature on June 10, 2005.
Turnover in the secondary market amounted to Lm114,000, down by Lm640,000 from the previous week's level. All deals were effected by the Central Bank in its role as market maker.