Excess liquidity in the banking sector decreased slightly in the week under review. This was mainly attributable to the fact that credit institutions started the week with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. There were also net payments of Lm4.9 million through the cheque clearing system, an increase of currency in circulation amounting to Lm1.7 million as well as Lm1 million worth of purchases of foreign currency against Maltese lira effected by credit institutions from the Central Bank.
Partly offsetting these liquidity-reducing factors were net maturing treasury bills of Lm8.6 million.
On Friday, the Central Bank of Malta held its usual 14-day term-deposit auction to absorb the excess liquidity. During this auction, an aggregate of Lm88.1 million was absorbed from the banking sector. This was Lm4.9 million less than the Lm93 million worth of term deposits maturing on the same day. Thus, outstanding term deposits held by credit institutions at the Central Bank decreased slightly, from Lm140 million to Lm135.1 million. This auction was carried out at a rate of 2.95 per cent, being the floor of the interest rate band (2.95-3.00 per cent) at which the Central Bank conducts its term-deposit auction.
In the week reviewed, the interbank market was fairly active. In total, three deals were transacted totalling Lm12.5 million. One transaction was effected in the one-week tenor at a rate of 2.95 per cent, unchanged from that effected on April 30. The other two deals were transacted in the two-week term. The latest weighted average rate of 2.9633 per cent was slightly higher (by 0.33 basis points) than the last two-week rate of 2.96 per cent dealt on April 29.
In the primary market, the Treasury invited tenders for 91-day and 182-day treasury bills to mature on August 6 and November 5 respectively. Inspite of the fact that the total number of bids for the 91-day issue was Lm16.9 million, the Treasury only allotted Lm0.32 million. As for the 182-day auction, the Treasury issued Lm8.7 million against Lm30.8 million bids submitted.
Given that total maturing treasury bills amounted to Lm18 million (which includes an amount of treasury bills that belonged to the Central Bank in its role as market maker), the outstanding bills' total fell by Lm9 million, from Lm269 million to Lm 260 million.
The primary treasury bill rate for the three-month auction fell significantly to 2.6555 per cent, that is by 25.1 basis points. This sharp decline in the 91-day bill rate was attributable to the fact that the Treasury accepted only 1.9 per cent of the total bids submitted for this auction. The weighted average yield emerged in stark contrast with the overall bid yield of 2.95 per cent, the cut-off rate being 2.8999 per cent. The latest rate reflects a bid price of Lm99.3423 per Lm100 nominal.
The primary rate for the 182-day treasury bill rate decreased marginally by 0.37 basis points from the 2.9061 per cent of the previous auction.
The rate of 2.9024 per cent reflects a bid price of Lm98.5734 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills and 273-day bills to mature on August 13 and February 11, 2005 respectively. Next week, the Treasury will hold auctions for 91-day bills to mature on August 20.
In the week under review, no transactions were effected in the treasury bill secondary market.