The banking sector continued to experience excess liquidity in the week ended on Friday, albeit at a lower level than the previous week.

This reduction in excess liquidity was mainly due to the fact that credit institutions started the week under review with a cumulative shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.

Furthermore, there was an increase in currency in circulation of Lm3.4 million. These liquidity reducing factors were partly offset by the maturity of Malta government stocks held by local credit institutions and interest payments thereon, net maturing treasury bills totalling Lm3 million and an increase of Lm1 million in net foreign assets.

Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the rate band of 3.2-3.25 per cent. During this auction, Lm68.2 million were absorbed, Lm5.8 million less than the amount maturing on the same day. As a result, outstanding term deposits held at the Bank decreased from Lm145.5 million of the previous week, to Lm139.7 million.

This auction was carried out at a weighted average rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

Unlike the previous weeks, no deals were transacted in the interbank market. This further reflects the excess liquidity prevailing across the banking sector.

In the primary market, the Treasury received tenders for 91-day treasury bills to mature on October 3. Once again, the demand for treasury bills exceeded total bills issued. In fact, total bids amounted to approximately Lm45 million, while the Treasury issued Lm22 million worth of bills. Since total maturing treasury bills amounted to Lm25 million, outstanding treasury bills decreased to Lm269.1 million from the previous Lm272.1 million.

The weighted average rate resulting from the 91-day treasury bill auction decreased substantially by 15.9 basis points to 3.2180 per cent from 3.3770 per cent, following the 25 basis points cut in the Bank's central intervention rate the previous week. The new rate reflects a bid price of Lm99.2041 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day treasury bills to mature on October 10. For the following week, the Treasury will again invite tenders for 91-day treasury bills to mature on October 17.

Turnover in the secondary market in the week under review amounted to Lm257,000. These deals were transacted by the Central Bank in its role of market maker.