Central Bank monetary operations
Liquidity in the banking system continued to increase in the week under review. This was mainly driven by the surplus funds that credit institutions had accumulated in their reserve deposit accounts and by payments of Lm3 million in social security benefits and treasury pensions that were effected through direct credits. Some liquidity was drained from the system following the Lm4.6 million net issue of treasury bills, sales of foreign currency against Maltese lira by the Central Bank which totalled Lm4.2 million and cash withdrawals of Lm2.6 million.
Due to the prevalent excess liquidity position on Friday, 3 June the Central Bank of Malta offered a 14-day term deposit auction, in order to absorb these extra funds.
A total of Lm16.5 million was absorbed from the system. On the same day, some Lm27 million were repaid to the Central Bank following the maturity of reverse repo (injection) operations that were effected a fortnight ago. As a result, the level of term deposits held by credit institutions with the Central Bank is now at Lm23.5 million.
The rate on these term deposits remained fixed at 3.2 per cent, being the floor of the interest rate band that the Bank applies in the term-deposit auctions for 14-day money.
Interbank market
Five interbank deals, totalling Lm11.8 million, were transacted in the week under review. This represents a decline of Lm4.2 million from last week’s turnover. One deal, amounting to Lm1 million, was effected in the 1-week tenor at a rate of 3.22 per cent, 2.5 basis points lower than the previous week’s rate. Another three deals totalling Lm6.3 million were conducted in the 2-week tenor. The weighted average rate at 3.2681 per cent represented an increase of 2.81 basis points from last week’s rate.
As in the previous week, another deal of Lm4.5 million was transacted in the one-month tenor at a rate of 3.28 per cent. This rate was three basis points higher than that of last week.
Treasury bill market
Once again the government resorted to the treasury bill market in order in meet its short-term financing requirements. This week the Treasury received bids for 91-day treasury bills to mature on 2 September 2005. A total of Lm12.6 million bids were submitted, all of which were accepted. On the same day Lm8 million worth of bills matured.
As a result, the level of outstanding Treasury bills increased to Lm210.8 million.
The weighted average rate resulting from this auction was 3.2575 per cent, which is only 0.65 basis points higher than the previous rate of 20 May 2005. This rate reflects a bid price of Lm99.1944 per Lm100 nominal.
On Monday, the Treasury invited tenders for 28-day bills to mature on 8 July 2005 and 91-day bills to mature on 9 September 2005. In the following week, the Treasury will receive bids for 182-day bills to mature on 16 December 2005.
Activity in the secondary market decreased considerably in the week under review. Only Lm0.2 million were transacted compared to the Lm6.2 million of the previous week.
Around half of the deals were conducted by the Central Bank in its role as a market maker for government securities.