Excess liquidity in the banking sector decreased notably in the week ended on Thursday, March 18. This was mainly attributable to the fact that credit institutions started the new reserve requirement maintenance period (March 15-April 14) with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Other outflows included the purchase of Lm13 million treasury bills in the primary market, the sale of Lm4.4 million worth of foreign currency against Maltese lira by the Central Bank to credit institutions as well as net payments through the cheque clearing system of Lm2 million.
There was also the purchase of Lm1.5 million treasury bills by the banks from the Central Bank in the secondary market. Slightly offsetting these outflows were Lm1 million government payments in direct credits mainly relating to invalidity pensions.
On Thursday, a 15-day term deposit auction (since Friday, March 19, was a public holiday) was conducted by the Central Bank, where Lm38 million were absorbed from the banking sector. This was Lm39.5 million lower than the Lm77.5 million maturing on the same day.
Thus, outstanding term deposits held at the bank fell sharply from Lm157.8 million to Lm118.3 million. This auction was carried out at a rate of 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 auction.
The interbank market was inactive in the week reviewed. This further reflects the excess short-term liquidity across the whole banking sector.
In the primary market, the Treasury invited tenders for 92-day treasury bills to mature on June 18. The volume of bids submitted during this auction by far exceeded the total treasury bills issued. In fact, only Lm13 million bills were issued against Lm25 million bids. Considering that no bills matured, total treasury bills outstanding increased from Lm237 million to Lm250 million.
The primary three-month rate for this issue was 2.9235 per cent, which was slightly lower, by 0.65 basis points, than the previous rate of 2.93 per cent. The latest rate reflects a bid price of 99.2685 per Lm100 nominal. Today, the Treasury will receive applications for 91-day treasury bills to mature on June 25.
Turnover in the secondary market continued to increase in the week under review, with the volume transacted amounting to Lm3,474,000. This was Lm722,000 higher than last week's total. The Central Bank, in its role as market maker, effected net sales of Lm1,484,000, while deals outside the Bank amounted to Lm1,850,000.