Central Bank monetary operations

Short-term liquidity in the banking system decreased during the week ended 10 December 2004. Credit institutions started the week under consideration with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Furthermore liquidity was reduced by an increase in currency in circulation of Lm5.1 million, a very common trend for this time of the year.

This decrease in liquidity was partly offset by Lm8 million net maturing Treasury bills, as well as direct credits amounting to Lm4.6 million, mainly related to retirement pensions. Other factors injecting liquidity were payments of dividends on Malta government stocks amounting to Lm1.7 million as well as a positive clearing of cheques totalling Lm1.3 million.

On Friday 10 December 2004 the Central Bank of Malta held its usual 14-day term deposit auction. An aggregate of Lm46.2 million was absorbed from the banking sector, Lm3.3 million less than the Lm49.5 million worth of term deposits that matured on the same day. Thus, the level of outstanding term deposits held by credit institutions at the Bank decreased from Lm70.5 million to Lm67.2 million. The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.95 per cen-three per cent) at which the Bank conducts its term deposit auctions.

Interbank market

Interbank activity increased from the previous week’s level of Lm1 million. Three deals were transacted in the week under review of which two deals, amounting to Lm3.75 million, were conducted for 7-day tenor at a weighted average rate of 2.952 per cent.

The latter was 0.2 basis points higher than the previous rate of 2.95 per cent. Another deal of Lm0.5 million was transacted for a 14-day tenor at the rate of 2.97 per cent which was one basis point above the previous 14-day interbank deal transacted at 2.96 per cent on 3 December 2004.

Treasury bill market

In the primary market the Treasury invited tenders for 91-day Treasury bills to mature on 11 March 2005.

The amount of bids submitted totalled Lm25.7 million, from which, the Treasury accepted only Lm7 million. Given that Lm15 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm8 million, from Lm259.4 million to Lm251.4 million.

The 91-day rate resulting from this auction was 2.9581 per cent, slightly higher by 0.2 basis points from the previous 91-day rate for bills issued on 3 December 2004. This rate reflects a bid price of Lm99.2679 per Lm100 nominal.

On Tuesday the Treasury received applications for 91-day bills to mature on 18 March 2005. For the following week, the Treasury will receive tenders for 364-day bills maturing on 23 December 2005.

Turnover in the secondary Treasury bill market decreased sharply from previous week’s level of Lm4.2 million to Lm0.1 million. All trading was effected by the Central Bank in its role as market maker.