Central Bank Monetary Operations

On Friday, 19 January 2007, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm107.2 million from the banking system.

This was Lm15.6 million less than the Lm122.8 million that matured on the same day.

The interest rate that resulted from the auction was 3.7 per cent, which is the floor of the interest rate band at which the Bank is currently conducting its term deposit auctions.

The net injection of funds was in response to a decrease in liquidity in the banking system during the week under review. The factors that contributed to this were a negative net clearing of cheques of Lm13.7 million, the purchase of Lm4.4 million worth of foreign currency against the Maltese Lira and the issue of new Treasury bills worth Lm3 million.

Partly offsetting these factors were a Lm5.3 million contraction in currency in circulation, government direct credits (mainly related to pensions and dividend payments) amounting to Lm4 million and sales of Lm2.5 million worth of Treasury bills in the secondary market.

Interbank Market

No interbank deals were reported during the week under review.

Treasury Bill Market

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 20 April 2007. Out of the Lm29.4 million worth of bids submitted, Lm3 million were accepted. In the same week, Lm0.7 million worth of bills matured.

This reduced the outstanding Treasury bills balance to Lm148.1 million.

The resulting 91-day rate from this auction was 3.8498%, down by 2.91 basis points from the previous week’s level.

This reflected a bid price of Lm99.0493 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 28-day bills maturing on 23 February 2007.

In the secondary market for Treasury bills, trading rose to Lm3.1 million, from the previous week’s level of Lm0.5 million. All deals were transacted with the Bank in its role of market maker.