Short-term excess liquidity experienced a marginal decline in the week ended under review but still remained at relatively high levels. This decline was due to the fact that the credit institutions started the new maintenance period for the reserve deposit requirement (November 15 - December 14) with a shortfall in the amount which they are legally bound to hold with the Central Bank of Malta.
In addition, there was a negative clearing of cheques of Lm3.9 million, which reduced liquidity further. Net maturing Treasury bills, amounting to Lm4.9 million, partially counteracted these liquidity-absorbing factors.
As a result, on Friday, the Central Bank of Malta conducted the usual seven-day term deposit auction. A total of Lm75 million was absorbed from the banking system, representing a decline of Lm1.6 million over the amount of term deposits that matured on that same day.
The rate resulting from the latest auction remained fixed at 3.2 per cent, representing the floor of the interest-rate band which the Central Bank applies in its weekly term-deposit auctions.
During the week reviewed, interbank market activity picked up after being dormant in the previous week. In fact, a total of five interbank deals, amounting to Lm3.3 million, were transacted.
Four of these deals were effected in the overnight tenor at a weighted average rate of 3.2233 per cent. The other deal was transacted in the one-month tenor, at a rate of 3.28 per cent.
In the primary market, the government invited tenders for 91-day Treasury bills to mature on February 17. A total of Lm19 million bids were submitted, from which, the Treasury accepted Lm1 million only, reflecting the government's strong cash position during the period reviewed.
In the same week, a total of Lm5.9 million worth of bills matured and, as a result, the level of outstanding Treasury bills decreased by Lm4.9 million to Lm184 million.
The three-month primary rate resulting from this auction continued to decrease to 3.1894 per cent, representing a decline of four basis points from the previous week's rate of 3.2294 per cent. This drop in the rate was conditioned by the government's reduced borrowing requirement and the fact that only Lm1 million worth of bills were accepted in the auction.
The latest rate reflects a bid price of Lm99.2111 per Lm100 nominal.
Today, the Treasury will receive applications for a 364-day bill to mature on November 24, 2006.
During the week under review, activity in the secondary market for Treasury bills augmented notably, with the total amount of deals reaching Lm11.5 million. Of these, Lm8.8 million were transacted outside the Central Bank, while the Central Bank in its role of market maker was involved in the remaining deals.