The level of surplus liquidity in the banking sector continued to decline last week when credit institutions started the week with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.
Furthermore, there was the purchase of foreign currency against the Maltese lira by the credit institutions from the Central Bank amounting to Lm6.8 million and an increase in currency in circulation of Lm2.2 million.
Additionally, there was a negative net clearing of cheques totalling Lm2.6 million which further reduced liquidity.
Partially offsetting the decrease in liquidity were direct credits amounting to Lm4.6 million and net maturing Treasury bills of Lm1.2 million.
Meanwhile, following the monthly meeting with the Monetary Policy Advisory Council, the Governor of the Central Bank decided last Tuesday to leave the bank's central intervention rate unchanged at 3.25 per cent (see www.centralbankmalta.com).
Accordingly, on Friday, the Central Bank invited credit institutions to tender for a 14-day reverse repo auction whereby the Bank would be prepared to inject funds into the banking system at a rate between a band of 3.25-3.30 per cent.
The amount injected through this reverse repo amounted to Lm9 million at a weighted average rate of 3.2611 per cent. Since there were no bids forthcoming from the credit institutions in the previous week's auction, the Central Bank's outstanding position vis-à-vis the banks in respect of monetary operations ended up with a net claim of Lm9 million.
Interbank activity decreased slightly from the previous week's level of Lm3 million to Lm2 million. In the week under review, one deal was transacted in the three-week tenor at a rate of 3.24 per cent, unchanged from the previous deal transacted during the week before in the same tenor.
In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on July 29. The amount of bids submitted, totalling Lm5 million, were all accepted by the Treasury. Given that Lm6 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm1 million, from Lm243.9 million to Lm242.9 million.
The latest three-month rate resulting from this auction was 3.2367 per cent. This was 25.4 basis points higher than the previous 91-day rate for bills issued on April 8, reflecting the impact of the 25 basis points increase in the Central Bank's central intervention rate on that same day. The latest rate reflects a bid price of Lm99.1995 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day bills to mature on August 5. For the following week, the Treasury will invite tenders for 364-day Treasury bills to mature on May 12, 2006.
Turnover in the Treasury bill secondary market increased to Lm2.4 million, from the previous week's level of Lm1 million. All trading was effected with the Central Bank of Malta in its role of market-maker.