Liquidity in the banking sector continued to prevail, albeit at a slightly lower level during last week. This reduced liquidity was mainly attributable to the fact that credit institutions experienced a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Moreover, the cheque clearing system reported net payments of Lm2.9 million during the week surveyed. Partly mitigating these liquidity-reducing factors were government payments in direct credits of Lm13.4 million in respect of salaries as well as the purchase of Lm1.6 million worth of foreign currency against the Maltese lira by the Central Bank from credit institutions.
On Friday, the Central Bank held its usual 14-day term-deposit auction to absorb the excess liquidity. During this auction, a total of Lm44.5 million was absorbed from the banking sector, which is Lm5 million lower than the Lm49.5 million worth of term deposits maturing on the same day.
As a result, outstanding term deposits held by credit institutions at the Central Bank decreased from Lm86.9 million to Lm81.9 million.
The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95-3.00 per cent) at which the Central Bank conducts its term deposit auction.
Interbank market activity picked up somewhat in the week reviewed, increasing by Lm3.2 million. The volume transacted consisted of three deals, all effected in the overnight tenor.
The weighted average rate was up by 29.15 basis points, to 2.8715 per cent, compared to that dealt on June 11. This sharp rise in the overnight rate was due to the fact that last week's rate resulted from the lending bank taking the initiative to deposit funds with the borrowing bank. Consequently the latter used a rate close to the published bid rate.
In the primary market, the Treasury invited tenders for 364-day treasury bills to mature on June 17, 2005. While total bids submitted amounted to Lm30.3 million, the Treasury issued only Lm13 million worth of bills.
During this period, Lm13 million worth of treasury bills matured. Accordingly, the outstanding stock of treasury bills remained at the same level of Lm265.8 million.
The primary treasury bill rate for the one-year issue was 2.9419 per cent, up by 2.04 basis points increase in the rate compared to the previous rate of 2.9215 per cent dealt on February 27. The latest rate reflects a bid price of Lm97.1498 per Lm100 nominal.
Today, the Treasury will receive applications for 272-day bills and 364-day bills to mature on March 24, 2005, and June 24, 2005, respectively.
Turnover in the treasury bill secondary market exhibited a notable increase of Lm4 million from the previous week's Lm36,000.
The bulk of trading was effected outside the Central Bank. In fact, the Bank was a net seller of only Lm33,000 in its role as market maker.