The level of surplus liquidity in the banking sector exhibited a marked increase in the week ended 14 January 2005. 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. Other factors contributing to this increase in excess liquidity included a net crediting of Lm7.4 million relating to net maturing Treasury bills, together with a positive clearing of cheques of Lm1.6 million.

Furthermore, there were Lm1.4 million Government payments in direct credits mainly relating to pensions and social security and a decrease in currency in circulation of Lm1.3 million which further increased liquidity. Slightly off-setting this increase in liquidity was the sale of foreign currency against the Maltese lira by the Central Bank of Malta to credit institutions amounting to Lm1 million.

Accordingly, on 14 January 2005, the Central Bank of Malta held its usual 14-day term deposit auction. An aggregate of Lm50.6 million was absorbed from the banking sector, Lm30.6 million more than the Lm20 million worth of term deposits that matured on the same day. Thus, the level of outstanding term deposits held by credit institutions at the Central Bank increased from Lm29.5 million to Lm60.1 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 Central Bank conducts its term deposit auctions. In addition to these term deposits, the banks also placed Lm7.6 million as overnight deposits with the Central Bank.

Interbank market

No interbank transactions were recorded in the week under consideration.

This reflects the excess liquidity situation across the whole banking sector.

Treasury bill market

In the primary market, the Treasury invited tenders for 91-day and 182-day Treasury bills to mature on 15 April and 15 July 2005 respectively. For the 91-day bill, the amount of bids submitted totalled Lm17.3 million, from which the government accepted only Lm1.2 million.

In the 182-day auction, the total amount of bids was higher at Lm20.3 million, out of which Lm10.8 million were accepted. Given that Lm19 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm7 million, from Lm242.3 million to Lm235.3 million.

The latest three-month rate resulting from this auction was 2.9548 per cent, virtually unchanged from the previous 91-day rate for bills issued on 7 January 2005. This rate reflects a bid price of Lm99.2687 per Lm100 nominal.

On the other hand, the latest six-month rate resulting from the auction was 2.9681 per cent, slightly up by 0.1 basis points from the previous 182-day rate for bills issued on 12 November 2004. This rate reflects a bid price of Lm98.5416 per Lm100 nominal.

Trading in the secondary Treasury bill market increased slightly from the previous week’s level of Lm3.2 million to Lm3.7 million.

Trading was dominated by one deal amounting to Lm3.5 million, transacted outside the Central Bank of Malta.