Central Bank monetary operations

Liquidity in the banking sector decreased in the week under review when compared to the previous week. The main reason for this decrease in liquidity was the fact that credit institutions started the maintenance period (15 June-14 July) with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Other factors contributing to this liquidity shortage were a negative net clearing of cheques totalling Lm3.9 million and the net issue of new Treasury bills amounting to Lm2.9 million. Partially offsetting this decrease in liquidity were direct credits amounting to Lm13 million and the purchase of foreign currency by the Bank from the credit institutions of Lm4 million.

In order to address this liquidity shortfall, the Bank invited credit institutions to tender for a 14-day reverse repo auction. The amount injected through this reverse repo amounted to Lm6 million at a weighted average rate of 3.2733 per cent. Since there were Lm16.5 million worth of maturing term deposits on the same day, the outstanding net balance held by the credit institutions with the Bank (consisting of deposits less reverse repos) decreased from Lm40.2 million to Lm17.7 million.

Interbank market

Four interbank deals totalling Lm16.3 million were transacted in the week under review, a substantial increase from the previous week’s low level of Lm1 million.

Treasury bill market

In the primary market, the Treasury invited tenders for 182-day Treasury bills to mature on 16 December 2005. As happened in the past few weeks, the Treasury in the week under review accepted all the bids, amounting to Lm15.9 million. Given that Lm13 million worth of bills matured during the same week, the outstanding balance of Treasury bills increased by Lm2.9 million, from Lm204.2 million to Lm207.1 million.

The latest six-month rate resulting from this auction was 3.2825 per cent. This was 6.17 basis points higher than the previous 182-day rate for bills issued on 22 April 2005. The latest rate reflects a bid price of Lm98.3896 per Lm100 nominal.

As in the previous week turnover in the Treasury bill secondary market was very low and amounted to only Lm0.2 million. All trading was effected with the

Central Bank of Malta in its role of market-maker.