Central Bank Monetary Operations

The level of surplus liquidity in the banking sector increased in the week ended 11 March 2005, after decreasing in the previous week.

Credit institutions started the week under review with an excess liquidity in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Furthermore, net maturing Treasury bills amounting to Lm2 million and Government payments of Lm1.4 million also contributed to this increase in liquidity.

Partially offsetting this increase in liquidity were the purchase of foreign currency against the Maltese lira from the Central Bank by the credit institutions amounting to Lm7 million, coupled with a negative net clearing of cheques totalling Lm1.6 million and the purchase of Treasury bills in the secondary market from the Central Bank amounting to Lm1 million.

Accordingly, on Friday, 11 March the Bank held a 13-day term deposit auction instead of the customary 14-day tenor (Friday, 25 March being Good Friday).

An aggregate of Lm15.7 million was absorbed from the banking sector, Lm7.2 million more than the Lm8.5 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 Lm27.5 million to Lm34.7 million.

The rate resulting from the latest auction remained at 2.95 per cent, being the floor of the interest rate band (2.9 – three per cent) at which the Bank conducts its term deposit auctions.

Interbank market

Interbank activity decreased slightly from the previous week’s level of Lm7.3 million to Lm6.1 million.

Two deals amounting to Lm2 million were transacted in the overnight tenor at a weighted average rate of 2.9523 per cent, slightly higher by 0.2 basis points from the previous overnight deal conducted on 28 February 2005.

Another two deals amounting to Lm0.9 million were conducted in the one-week tenor at a rate of 2.96 per cent while a further two deals, totalling Lm3.2 million, were effected in the two-week tenor at a rate of 2.97 per cent. Both rates remained unchanged from the previous transacted rates.

Treasury bill market

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on 10 June 2005.

The amount of bids submitted totalled Lm8.1 million, of which Lm5 million were accepted by the Treasury.

Given that Lm7 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm2 million, from Lm255.1 million to Lm253.1 million.

The latest three-month rate resulting from this auction was 2.9805 per cent.

This was 0.7 basis points higher than the previous 91-day rate for bills issued in the previous week. This rate reflects a bid price of Lm99.2624 per Lm100 nominal.

Turnover in the secondary Treasury bill market amounted to Lm1.3 million an increase of Lm1.2 million from the previous level of Lm0.1 million.

All trading was effected with the Central Bank in its role as market-maker.