Central Bank Monetary Operations
Excess liquidity in the banking system increased in the week ended 7 January 2005 after remaining unchanged in the previous week. The main factor which contributed to this rise in liquidity was the payment of retirement pensions and other social security payments amounting to Lm5.5 million and Lm1.5 million in interest payments. There was also a positive clearing of cheques amounting to Lm3.5 million and a decrease in currency in circulation of Lm1 million.
Furthermore, credit institutions started the week under review with a surplus in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. This increase in liquidity was partly offset by the sale of foreign currency against the Maltese lira from the Central Bank of Malta amounting to Lm7.6 million.
On Friday 7 January, the Central Bank of Malta accordingly held its usual 14-day term deposit auction. An aggregate of Lm9.5 million was absorbed from the banking sector, Lm8.5 million more than the Lm1 million worth of term deposits that matured on the same day. Thus, the level of outstanding term deposits held by credit institutions at the Bank increased from Lm21 million to Lm29.5 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 increased slightly from the previous week’s level of Lm4.9 million. In fact in the week under review, three interbank deals amounting to Lm6.1 were transacted. One deal amounting to Lm5 million was conducted for a two-week tenor at a rate of 2.97 per cent which was similar to the previous 14-day rate dealt in the previous week. The two other deals, amounting to Lm1.1 million, were conducted for a one-week tenor at a weighted average rate of 2.96 per cent which was one basis point lower than the rate dealt on 24 December 2004.
Treasury bill market
In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on 8 April 2005. The amount of bids submitted totalled Lm10.1 million, from which the Treasury accepted only Lm2 million. Given that Lm5 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm3 million, from Lm245.3 million to Lm242.3 million.
The latest three-month rate resulting from this auction was 2.9553 per cent, virtually unchanged from the previous 91-day rate for bills issued on 17 December 2004. This rate reflects a bid price of Lm99.2686 per Lm100 nominal.
Trading in the secondary Treasury bill market declined from previous week’s level of Lm6 million to Lm3.2 million. One deal amounting to Lm2 million was transacted outside the Central Bank, while the Bank effected net purchases of Lm1.2 million in its role of market maker.