Excess liquidity in the banking sector persisted last week, although at a lower level than the previous week. This decline was due to the fact that liquidity was partly channelled for the purchase of new Malta government stocks.
There was also the issue of Lm2 million worth of treasury bills in the primary market and a decrease in net foreign assets of Lm1.8 million. These liquidity reducing factors were partially mitigated by the fact that credit institutions started the week under review with a cumulative excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, there was the sale of about Lm7.2 million worth of treasury bills to the Central Bank in the secondary market and a decrease of banknotes in circulation of Lm1.6 million.
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, Lm52 million were absorbed, Lm 19.5 million less than the amount maturing on the same day.
As a result, outstanding term deposits held at the bank decreased from Lm139.7 million the previous week, to Lm120.2 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.
One deal was transacted in the interbank market amounting to Lm1 million. This was transacted in the seven-day tenor at a weighted average rate of 3.2 per cent, which is 48.7 basis points lower than the last interbank deal transacted in the same tenor in May.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on October 10. As in the previous weeks, the demand for treasury bills exceeded total bills issued. In fact, total bids amounted to approximately Lm27 million, while the Treasury issued approximately Lm2 million worth of bills.
Outstanding Treasury bills increased by exactly Lm2 million, from Lm269.1 million to Lm271.1 million, given that no treasury bills matured on the same day.
The weighted average rate resulting from this auction declined by a further 9.46 basis points to 3.1234 per cent from 3.2180 per cent. The new rate reflects a bid price of Lm99.2273 per Lm100 nominal.
Today, the Treasury will receive applications for 91-day treasury bills to mature on October 17. Next week, the Treasury will again invite tenders for both 91-day treasury bills to mature on October 24 and for 364-day bills to mature on July 24, 2004.
Turnover in the secondary market in the week under review increased substantially to Lm7.5 million. These deals were transacted by the Central Bank in its role of market maker. No deals were transacted outside the Central Bank.