The Governor of the Central Bank of Malta, following the monthly meeting with the Monetary Policy Advisory Council on Monday of last week, decided to leave the Central Bank's central intervention rate unchanged at three per cent (see www.centralbankmalta.com).
Short-term liquidity in the banking system increased during the week ended under review after declining in the previous two weeks. The main factor inducing this rise in liquidity was the payment of salaries and pensions, through direct credits, which amounted to Lm13.4 million.
Furthermore, credit institutions started the week under consideration with an excess in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.
The increase in liquidity was partly offset by an Lm8 million net issue of treasury bills, and a negative clearing of cheques amounting to Lm4.4 million, largely associated to tax payments. There was also an increase in currency in circulation of Lm1.9 million, which further reduced liquidity.
On Friday, the Central Bank held its usual 14-day term-deposit auction. An aggregate of Lm21 million was absorbed from the banking sector, Lm14.2 million more than the Lm6.8 million worth of term deposits that matured on the same day. Thus, the level of outstanding term deposits held by credit institutions at the Central Bank increased from Lm56.3 million to Lm70.5 million. The rate resulting from the latest auction remained at 2.95 per cnt, being the floor of the interest rate band (2.95-3.00 per cent) at which the Cantral Bank conducts its term deposit auctions.
Interbank activity decreased from the previous week's level and only one deal was transacted in the week under review. This deal, amounting to Lm1 million, was conducted for a two-week tenor at 2.96 per cent, which is one basis point lower than the latest 14-day rate of 2.97 per cent transacted in the previous week.
In the primary market, the Treasury invited tenders for 91-day treasury bills to mature on March 4, 2005. The amount of bids submitted totalled Lm23.7 million, from which the Treasury accepted only Lm11 million. Given that Lm3 million worth of bills matured during the week under review, the outstanding balance of treasury bills increased by Lm8 million, from Lm251.4 million to Lm259.4 million.
The 91-day rate resulting from this auction was 2.9565 per cent, slightly higher by 0.3 basis points from the previous 91-day rate for bills issued on November 19. This rate reflects a bid price of Lm99.2683 per Lm100 nominal.
Today the Treasury will receive applications for 91-day bills to mature on March 11, 2005. Next week, the Treasury will again receive tenders for 91-day bills maturing on March 18, 2005.
Turnover in the secondary treasury bill market increased significantly from the previous week's level of Lm0.5 million to Lm4.2million. One deal amounting to Lm4 million was transacted outside the Central Bank, while the Central Bank effected net purchases of Lm0.1 million