Short-term excess liquidity in the banking sector continued to increase during the week ended last Friday. The main reasons for this surplus were maturing term deposits totalling Lm79.5 million, purchases of foreign currency by the Central Bank totalling Lm19 million against Maltese lira and direct credits amounting to Lm12 million relating to payments of salaries and pensions.
Furthermore, the banks started last week with a cumulative excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
As a result, the Central Bank conducted a term deposit auction on Friday. During this auction the Bank absorbed Lm111.5 million, Lm32 million more than the amount that matured on the same day. Accordingly, outstanding term deposits increased to a new record high of Lm169.5 million.
The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95-4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money.
No deals were transacted in the local inter-bank market in the week under review. Once again, this reflects the surplus liquidity position of all the credit institutions.
In the primary market for treasury bills, the government invited tenders for 91-day bills to mature on February 28, 2003. Applications amounted to approximately Lm47.4 million, while the Treasury issued only Lm16.2 million treasury bills. Since approximately Lm13 million worth of treasury bills matured on the same day, outstanding bills increased to Lm199 million. In this regard, a noteworthy development was the parliamentary resolution passed last Wednesday, whereby the statutory limit on outstanding treasury bills was raised from Lm200 million to Lm300 million.
Treasury bill yields continued to decline to new lows, under the impact of the exceptionally high levels of short-term liquidity characterising the money market. In fact, the weighted average rate resulting from this auction was 3.8691 per cent, down by 1.96 basis points (or 0.0196 of one percentage point) from the previous 91-day tenor. The latest rate corresponds to a price of Lm99.0446 per Lm100 nominal. The yield resulting from this auction is 8.09 basis points lower than the Central Bank's absorption floor.
Today the Treasury will invite tenders for 92-day treasury bills to mature on March 7, 2003. For the following week, the Treasury will invite tenders for 91-day bills to mature on March 14, 2003 and 183-day bills to mature on June 13, 2003.
During the week under review, turnover in the secondary market amounted to Lm1,832,000. Purchases conducted by the Central Bank in its role as a market maker totalled Lm32,000 while deals outside the Central Bank amounted to Lm1,800,000.