Central Bank Monetary Operations

On Thursday 25 January 2007, following the monthly meeting with the Monetary Policy Advisory Council, the Governor of the Central Bank of Malta decided to raise the bank’s Central Intervention Rate by 25 basis points to 4% (see www.centralbankmalta.com).

On Friday 26 January 2007, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm127.5 million from the banking system. This was Lm20.3 million more than the Lm107.2 million that matured on the same day. The interest rate that resulted from the auction was 3.95%, which is the new floor of the interest rate band at which the bank is currently conducting its term deposit auctions.

The net absorption of funds was in response to an increase in liquidity in the banking system during the week under review.

The main contributing factors were government direct credits (mainly relating to salaries) amounting to Lm12.9 million, a Lm4.4 million contraction in currency in circulation and net sales of Lm1.3 million worth of treasury bills in the secondary market. Partly offsetting these factors was the purchase of Lm2 million worth of foreign currency against the Maltese lira.

Interbank Market

For the sixth consecutive week, no interbank deals were reported.

Treasury Bill Market

In the primary market for treasury bills, the treasury invited tenders for 28-day bills maturing on 23 February 2007. Out of the Lm27.3 million worth of bids submitted, none were accepted, reflecting the government’s strong liquidity position. Furthermore, as no bills matured during the week, the outstanding treasury bills balance remained unchanged at Lm148.1 million.

On Tuesday treasury invited tenders for 91-day bills maturing on 4 May 2007. Next week the treasury will invite bids for 273-day bills maturing 9 November 2007.

In the secondary market for treasury bills, trading rose to Lm3.8 million, from the previous week’s level of Lm3.1 million.

All deals were transacted with the bank in its role of market maker.