The Governor of the Central Bank of Malta, following the meeting with the Monetary Policy Advisory Council on Thursday, decided to leave the Bank's central intervention rate unchanged at three per cent.

The level of excess liquidity in the banking sector rose in the week under review. The main factors spurring this increase were Lm14 million direct credits mainly relating to government salaries, pensions and dividend warrants as well as the purchase of Lm9.2 million worth of foreign currency against Maltese lira by the Central Bank from credit institutions.

These inflows were partly offset by the fact that credit institutions started the week under consideration with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank.

Other outflows from the banking sector consisted of Lm4 million net purchases of treasury bills and net payments by banks through the cheque clearing system of Lm2.4 million.

Consequently, on Friday, the Central Bank conducted a 14-day term-deposit auction, absorbing Lm71.6 million from the banking sector. This is Lm2.6 million higher than the Lm69 million maturing on the same day.

Consequently, outstanding term deposits held at the bank rose from Lm137 million to Lm139.6 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.

Turnover in the interbank market picked up in the week under review. Two interbank deals were transacted, totalling Lm2.8 million. One of these deals was effected in the overnight tenor.

The rate transacted (2.95 per cent) remained unaltered from that effected on January 15. The other transaction was in the 14-day tenor which was dealt at a rate of 2.97 per cent, unchanged from that of January 23.

In the primary market, the Treasury invited tenders for 364-day treasury bills to mature on February 25, 2005. The volume of bids submitted, which totalled Lm39.4 million, exceeded the Lm20 million bills issued by the Treasury. Considering that Lm16 million treasury bills (182-day) matured in the week reviewed, the outstanding bill total increased by Lm4 million, to Lm229.1 million.

The primary one-year rate for this issue was 2.9215 per cemt, marginally lower (0.81 basis points) than the previous rate of 2.9296 per cent for treasury bills issued on January 30. The latest rate reflects a bid price of 97.169 per Lm100 nominal.

Today, the Treasury will receive applications for 91-day treasury bills to mature on June 4. Next week the Treasury will invite tenders for 182-day treasury bills maturing on September 10.

There was a marked increase in secondary market activity in the week under review.

In fact turnover rose from Lm24,000 to Lm2,694,000. The Central Bank, in its role as market maker, effected net purchases of Lm1,804,000.

Dealing outside the Bank amounted to Lm800,000.