Central Bank Monetary Operations

The level of surplus liquidity in the banking sector increased in the week ended 4 February 2005, after decreasing in the previous week. The main factor behind this increase was the surplus that credit institutions accumulated in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.

Furthermore, there was the net sale of foreign currency against the Maltese lira to the Central Bank amounting to Lm8.4 million, Government payments in direct credits amounting to Lm5.1 million mainly related to pensions and a further Lm1.9 million in interest payments on Malta Government stocks.

Additionally, there was a positive clearing of cheques amounting to Lm1.1 million which further increased liquidity. Partially offsetting this liquidity surplus was the rise in currency in circulation of Lm4.7 million and the purchase of Lm3.5 million Treasury bills by a credit institution from the Central Bank.

Accordingly, on Friday, 4 February the Central Bank held its usual 14-day term deposit auction. An aggregate of Lm31.3 million was absorbed from the banking sector, Lm25.3 million more than the Lm6 million worth of term deposits that matured on the same day. Thus, the level of the banks’ outstanding term deposits at the Central Bank increased from Lm29.8 million to Lm55.1 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 – 3 per cent) at which the bank conducts its term deposit auctions.

Interbank market

Interbank activity increased slightly from the previous level of Lm2.5 million. In fact in the week under review, three interbank deals amounting to Lm4.2 million were transacted. Two deals totalling Lm3.7 million were effected in the overnight tenor at a weighted average of 2.9554 per cent, up by 0.5 basis points from the previous interbank deal in the same tenor dealt on 20 December 2004. The other deal of Lm0.5million was transacted in the seven-day tenor at a rate of 2.95 per cent, unchanged from the previous week’s rate.

Treasury bill market

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on 6 May 2005. The amount of bids submitted totalled Lm14.1 million, which were all accepted by the Treasury. Given that Lm16 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm1.9 million, from Lm234.3 million to Lm232.4 million.

The latest three-month rate resulting from this auction was 2.9707 per cent. This was 0.5 basis points higher than the previous 91-day rate for bills issued the previous week. This rate reflects a bid price of Lm99.2648 per Lm100 nominal.

Today the Treasury will receive applications for 273-day bills to mature on 11 November 2005. For the following week, the Treasury will accept bids for 91-day Treasury bills to mature on 20 May 2005.

Turnover in the secondary Treasury bill market picked up from the previous week’s level of Lm0.3 million.

The Central Bank effected net sales amounting to Lm3.5 million in its role as market-maker. No deals were transacted outside the Bank.