Central Bank Monetary Operations

Excess liquidity in the banking system decreased in the week ended 21 January 2005 after increasing in the previous week. Credit institutions started the week under review with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Additionally, there was a negative clearing of cheques amounting to Lm1.9 million which further reduced liquidity. Partially offsetting this decrease in liquidity were payments by the government in direct credits of Lm3 million mainly relating to pensions and interest payments on Malta Government Stocks. Furthermore, there was a decrease in currency in circulation of Lm2.7 million and the sale of Lm2 million Treasury bills by a subsidiary of a credit institution to the Central Bank of Malta.

On Friday 21 January, the Central Bank of Malta accordingly held its usual 14-day term deposit auction. An aggregate of Lm6 million was absorbed from the banking sector, Lm3.5 million less than the Lm9.5 million worth of term deposits that matured on the same day. Thus, the level of outstanding term deposits decreased from Lm60.1 million to Lm56.6 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 cent – three per cent) at which the Bank conducts its term deposit auctions.

Interbank market

In the week under review, three interbank deals amounting to Lm7 million were transacted. This contrasts sharply with the previous week when no interbank activity was registered. One deal amounting to Lm5 million was conducted for a one-month tenor at a rate of 2.98 per cent which remained unchanged from the previous one month rate dealt on 15 December 2004. The two other deals, amounting to Lm2 million, were conducted for a one-week tenor at a weighted average rate of 2.955 per cent which was 0.5 basis points lower than the rate dealt on 7 January 2005.

Treasury bill market

In the primary market, the Treasury invited tenders for 182-day Treasury bills to mature on 22 July 2005. The amount of bids submitted totalled Lm15 million, from which, the Treasury accepted only Lm9 million. Given that Lm10 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm1 million, from Lm235.3 million to Lm234.3 million.

The latest six-month rate resulting from this auction was 2.9784 per cent up by one basis point from the previous 182-day rate for bills issued the previous week. This rate reflects a bid price of Lm98.5366 per Lm100 nominal. Trading in the secondary Treasury bill market increased from previous week’s level of Lm3.2 million to Lm10.4 million. One deal amounting to Lm6 million was transacted outside the Central Bank, while the Bank effected net purchases of Lm0.3 million in its role of market maker.