Central Bank Monetary Operations

The level of surplus liquidity continued to decline in the week ended 15 April 2005. Credit institutions started the new maintenance period (15 April-14 May) with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Additionally, there was the net issuance of Treasury bills amounting to Lm6 million and a negative cheque clearing of Lm1 million that further decreased liquidity. Offsetting this shortfall were maturing overnight deposits of Lm45.6 million.

Thus, a 14-day term deposit auction was conducted by the Central Bank on Friday, 15 April within the new rate band of 3.2 per cent-3.25 per cent. An aggregate of Lm11.5 million was absorbed from the banking sector, Lm17.9 million less than the Lm29.4 million worth of term deposits that matured on the same day. Thus, the level of the banks’ outstanding term deposits at the Central Bank decreased to Lm11.5 million from Lm29.4 million, given that no term deposits were outstanding from the previous week’s auction. The latest auction was carried out at a rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

Interbank market

Interbank market activity decreased sharply from the previous week’s level of Lm17.2 million to Lm1.8 million. This was spread over two deals, both in the two-week tenor at a weighted average rate of 3.233 per cent. This was 26.3 basis points higher from the previous 14-day interbank rate transacted on the 4 April 2005 (prior to the CBM Central Intervention Rate increase).

Treasury bill market

In the primary market, the government invited bids for 28-day Treasury bills to mature on 13 May 2005. From the Lm16 million worth of bids submitted, Lm7 million were accepted. This was Lm5.8 million higher than the amount of Treasury bills that matured on the same day. Consequently, the level of outstanding Treasury bills increased to Lm243 million from the previous week’s level of Lm237.2 million.

The latest one-month rate resulting from this auction was 3.2108 per cent, up by 25.4 basis points from the previous 28-day rate dealt on the 29 October 2004. This rise was in line with the recent increase in the Central Intervention Rate. The latest 28-day Treasury bill rate reflects a bid price of Lm99.7543 per Lm100 nominal.

Trading in the secondary market picked up considerably in the week under review with turnover totalling Lm16.2 million compared to the previous week’s level of Lm3.3 million. Most of this week’s turnover, Lm15.7 million (all sales), were transacted with the Central Bank in its role as market maker, while trading outside the Central Bank amounted to Lm0.5 million.