Short-term liquidity in the banking system increased slightly in the week under review. The rise in liquidity was mainly propelled by the maturity of Lm20 million treasury bills, which were re-injected into the banking system, and by the surplus in the reserve deposit accounts that credit institutions had at the beginning of the week.
These liquidity-inducing factors were partially offset by an increase of Lm6.5 million in currency in circulation during the week, largely associated to the Christmas spending spree.
Other liquidity-reducing items include payments effected through the cheque clearing system, totalling Lm7.5 million, and other transfers to the government relating to payments of provisional tax.
Accordingly, last Wednesday, the Central Bank of Malta conducted a term-deposit auction in order to absorb this excess liquidity. In this auction, Lm67.5 million were absorbed, Lm2.1 million more than the amount that matured on the same day.
As a result, the volume of term deposits held with the Central Bank increased from Lm114.4 million to Lm116.5 million. Interest paid on these deposits remained unchanged at 2.95 per cent, which is the floor for the Central Bank's term deposit auction. Interbank market activity was relatively subdued in the week under review. In fact, only one deal was transacted for a one-week term at a rate of 2.96 per cent.
This rate was two basis points lower than last week's rate.
As in the previous week, the Treasury did not raise any funds from the primary market, notwithstanding that Lm20 million bills matured during the week. Thus, the Lm38.6 million worth of bids for the 184-day treasury bill tender were left unsatisfied. This development reflects the government's relatively strong cash position.
Consequently, the volume of outstanding treasury bills decreased from Lm233.3 million to Lm213.3 million. The latest six-month treasury bill rate, dated October 17, was 2.9262 per cent.
Today the Treasury will receive tenders for 93-day bills to mature on April 2, 2004.
Once again, the secondary market for treasury bills was quite buoyant during the week reviewed, although not to the same extent of the previous week. Turnover totalled Lm7.57 million, which is Lm9.43 million lower than that of the previous week.
The Central Bank, in its role as a market maker, was only involved in Lm73,000 worth of trade, with the Bank being a net seller of bills.
The rest of the transactions were conducted outside the Central Bank.