Central Bank Monetary Operations
In the week ending 10 November, the bank conducted a term deposit auction, absorbing a total of Lm145.6 million, Lm25.4 million less than the amount that matured on the same day. The rate resulting from the auction was 3.7 per cent, being the floor of the interest rate band (3.7 per cent-3.75 per cent) at which the bank is
currently conducting its term deposit auctions.
The net injection of funds was in response to a substantial decline in liquidity in the banking system during the week under review. To begin with, credit institutions started the week with a shortfall in their statutory reserve deposit accounts with the bank. In addition, the purchase of Lm3 million worth of foreign currency against the Maltese lira from the bank, the net issue of Treasury bills to credit and financial institutions amounting to Lm8.3 million and a Lm1.2 million contraction in currency in circulation decreased liquidity further. Partly offsetting these factors were Government direct credits, mainly related to pension payments, amounting to Lm4.6 million, and a positive net clearing of cheques of Lm1.7 million.
Interbank market
Interbank activity remained practically unchanged from the previous week. Two deals, for a total of Lm2.6 million, were effected in the overnight tenor at a weighted average interest rate of 3.75 per cent, 10 basis lower than the weighted average rate on a similar deal struck the previous week.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 182-day bills maturing on 11 May 2007 and 273-day bills maturing on 10 August 2007. From the Lm22.8 million worth of bids submitted for the six-month bill, bids for Lm12.8 million were accepted by the Treasury, while from the Lm18 million worth of bids for the nine-month tenor, bids for Lm10 million were accepted. Given that Lm17.4 million bills matured during the week, the outstanding balance of Treasury bills increased by Lm5.4 million to Lm141.2 million.
The latest six-month rate resulting from the week’s Treasury bill auction was 3.9977 per cent. This was 24 basis points higher than the rate on the 182-day bills issued on 13 October and reflected a bid price of Lm98.0456 per Lm100 nominal. The latest rate for the nine-month tenor was 4.0710 per cent, 25 basis points higher than the previous rate on 273-day bills, those issued on 6 October. The latest yield reflected a bid price of Lm97.0451 per Lm100 nomi-nal. These were the first rates following the increase in the bank’s Central Intervention Rate on 31 October 2006.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 16 February 2007. In the following week, the Treasury will accept bids for 91-day bills in the same tenor, maturing on 23 February 2007.
Trading in the secondary market for Treasury bills increased from the previous week’s level of Lm0.2 million to Lm0.7 million. All deals were transacted with the bank in its role of market maker.