Central Bank Monetary Operations
On Thursday 7 September 2006, the Central Bank of Malta conducted an eight-day term deposit auction, absorbing a total of Lm132.6 million from the banking system, Lm41.4 million less than the Lm174 million that matured on the same day. The rate resulting from the auction was 3.45%, being the floor of the interest rate band (3.45 per cent-3.50 per cent) at which the bank is currently conducting its term deposit auctions.
The net injection of funds was in response to a further decline in bank liquidity. Credit institutions started the week under review with a shortfall in their statutory reserve deposit accounts with the bank. Other liquidity-reducing factors included a negative net clearing of cheques amounting to Lm11.7 million, mainly related to payments of provisional tax and customs duties, a Lm4.9 million issue of new Treasury bills, a Lm1.7 million increase in currency in circulation and net interbank deals of Lm1 million transacted with a credit institution outside the relevant liquidity pool. Partly offsetting these factors were direct credits amounting to Lm12.7 million, mainly related to the payment of government salaries.
Interbank market
Turnover in the interbank market fell to Lm9.3 million during the week, from Lm10.7 million in the previous week. Two deals were struck in the overnight tenor at a weighted average interest rate of 3.28 per cent, 10 basis points higher than the weighted average rate on similar deals concluded the previous week. Three other deals were struck in the one-week tenor at a weighted average rate of 3.38 per cent, up by one basis point from the weighted average rate on similar deals transacted the previous week.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 7 December 2006 and 274-day bills maturing on 8 June 2007. From the Lm25.4 million worth of bids submitted for the three-month bill, Lm4.3 million were accepted by the Treasury, while from the Lm14.4 million worth of bids submitted for the nine-month tenor, only Lm0.5 million was accepted. Given that no Treasury bills matured during the week, the outstanding balance of Treasury bills increased by Lm4.9 million to Lm144.7 million.
The latest 3-month rate resulting from the week’s Treasury bill auction was 3.6435 per cent. This was 0.1 basis points lower than the rate on 91-day bills issued in the previous week and reflected a bid price of Lm99.0998 per Lm100 nominal. The latest rate for the nine-month tenor was 3.8935 per cent, which was 42.2 basis points higher than the previous nine-month rate, that on bills issued on 23 June 2006, and reflected a bid price of Lm97.1602 per Lm100 nominal.
Turnover in the secondary market for Treasury bills rose to Lm0.8 million during the week from the insignificant amounts transacted in the previous week. All trading was effected by the bank in its role of market-maker.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 15 December 2006 and 182-day bills maturing on 16 March 2007. In the following week, the Treasury will accept bids for bills in the 363-day tenor to be issued on 22 September 2006 and maturing on 20 September 2007.