Central Bank monetary

operations

The level of surplus liquidity in the banking sector experienced a sharp decline in the week ended 24 December 2004 having remained broadly unchanged in the previous week. The decline was spurred by substantial outflows from the banking system towards the Government, largely related to tax payments, which amounted to Lm34.3 million. Furthermore liquidity also decreased following sales of foreign currency against Maltese lira by the Central Bank of Malta, totalling Lm16.3 million. There was also an increase in currency in circulation of Lm1.6 million that further reduced liquidity. This decline in liquidity was partially offset by direct credits of Lm3.9 million, mainly related to social security payments and pensions.

On Friday 24 December the Central Bank of Malta held its usual 14-day term deposit auction. Only Lm1 million of the Lm46.2 million worth of term deposits that matured on the same day was absorbed from the banking sector. Thus the level of outstanding term deposits held by credit institutions at the Bank decreased from Lm66.2 million to Lm21 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95 per cent-three per cent) at which the Bank conducts its term deposit auctions.

Interbank market

Interbank activity continued to increase from the previous week’s level of Lm11.5 million to Lm16.3 million. Nine deals were transacted in the week under review in tenors ranging from overnight to three weeks. One deal, in the overnight tenor, and another four deals in the 7-day tenor, were both transacted at a weighted average rate of 2.95 per cent. The other four other deals, two in the 14-day tenor and two in the 21-day tenor, were all conducted at the same rate of 2.97 per cent. All rates remained unchanged with the exception of the 21-day rate, which fell by one basis point from the previous week’s rate.

Treasury bill market

In the primary market the Treasury invited tenders for 364-day Treasury bills to mature on 23 December 2005. The amount of bids submitted totalled Lm14.9 million, none of which were accepted by the Treasury. Given that no bills matured during the week under review, the outstanding balance of Treasury bills remained unchanged at Lm245.4 million.

In the week under review, secondary market turnover of Treasury bills increased sharply from previous week’s level of Lm0.4 million to Lm10.6 million. The bulk of the deals were transacted outside the Central Bank of Malta.