Central Bank monetary operations
Liquidity in the banking system decreased in the week under review, reversing the upward trend of the last few weeks.
Credit institutions started the week with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. There was a negative net clearing of cheques amounting to Lm8.3 million, mainly related to tax payments, which decreased liquidity further. Partially offsetting this decrease were Government direct credits of Lm1.6 million.
Accordingly, on Friday, 23 September, the bank conducted a seven-day term deposit auction. An aggregate of Lm40 million was absorbed from the banking sector, Lm25.2 million less than the Lm65.2 million worth of term deposits that matured on the same day. Following the previous week’s change in the tenor of monetary operations from 14 days to seven days, the amount maturing during the period reviewed represented the aggregate of Lm24.9 million absorbed in the 14-day auction held a fortnight ago and Lm40.3 million of the seven-day auction held last week. As a result of the smaller amount absorbed in the latest auction, the bank’s outstanding term deposits decreased from Lm65.2 million to Lm40 million. The rate resulting from the latest auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the bank conducts its term deposit auctions.
Interbank market
During the week under review three deals, amounting to a total of Lm7.2 million, were transacted, compared to the Lm13 million worth of deals effected the previous week. Deals were transacted in the one and two-week tenors. There was an increase of two basis points in the rate of the two-week tenor compared to the previous week, whereas the one-week tenor remained virtually unchanged.
Treasury bill market
In the primary market, the Treasury invited tenders for 273-day Treasury bills to mature on 23 June 2006. From the Lm26.1 million worth of bids submitted, Lm9.9 million were accepted by the Treasury.
Given that Lm12.5 million worth of bills matured during the week under review, the outstanding balance of Treasury bills fell by Lm2.6 million, from Lm186.7 million to Lm184.1 million.
The latest nine-month rate resulting from this auction was 3.4210 per cent. This rate reflected a fall of 5.4 basis points from the previous 273-day rate for bills issued on 24 June 2005. The latest rate reflects a bid price of Lm97.5051 per Lm100 nominal.
Turnover in the secondary market picked up to Lm5.7 million in the period reviewed, from the Lm0.2 million the week before. Purchases amounted to Lm2.86 million, while sales totalled Lm2.8 million. All trading was effected by the bank in its role of market-maker.