Central Bank Monetary Operations

Short-term liquidity in the banking system remained broadly unchanged in the week ended 17 December 2004. The increase in liquidity brought about by net maturing Treasury bills of Lm6 million was almost completely neutralised by a negative clearing of cheques of Lm3.9 million, mainly related to tax payments,

and sales of foreign currency by the Central Bank of Malta against Maltese lira totalling Lm1.6 million.

On Friday 17 December Lm21 million term deposits matured. As a result, the Central Bank of Malta held its usual 14-day term deposit auction, where these funds were practically rolled-over for another two weeks.

In fact a total of Lm20 million was absorbed in this auction, thus reducing by Lm1 million the level of outstanding term deposits held with the Central Bank, from Lm67.2 million to Lm66.2 million.

The weighted average rate on these term deposits remained unchanged at 2.95%.

Interbank market

Interbank market activity continued to pick up from the previous week.

A total of Lm11.5 million was transacted compared to the Lm4.25 million of the previous week. This week’s turnover consisted of six deals which were transacted in tenors ranging from overnight to one month.

Interbank market rates registered some minor changes. The overnight rate increased by two basis points to 2.95 per cent. On the other hand the one-week and two-week rates declined.

The one-week rate fell slightly by 1 basis point to 2.95 per cent and the two-week rate declined marginally by 0.5 basis point to 2.965 per cent. Another two deals were transacted in the three-week and one-month tenors – these are less common among market participants. Both these rates remained unchanged at 2.98 per cent.

Treasury bill market

In the primary market, the Treasury offered a 91-day Treasury bill auction.

A total of Lm9 million bids were accepted in this auction against Lm15 million worth of Treasury bills that matured. Demand, however, was much larger with the total number of bids amounting to Lm31.8 million. Following the auction, the level of outstanding Treasury bills declined by Lm6 million, from Lm251.4 million to Lm245.4 million.

The weighted average 91-day yield remained almost unchanged, edging minimally upwards from 2.9581 per cent to 2.9585 per cent.

This latest rate reflects a weighted average bid price of Lm99.2678 per Lm100 nominal. Turnover in the secondary market was low during the week, reaching only Lm0.4 million. All deals were conducted with the Central Bank in its role as market maker.