Central Bank Monetary Operations

Short-term liquidity in the banking system perked up in the week under review, after declining in the previous week. This was mainly fuelled by Government payments of retirement pensions, which amounted to Lm3.2 million, and Lm1 million dividend warrants. Moreover, the Treasury issued Lm5.3 million fewer Treasury bills than the number that matured, thereby contributing to a further increase in liquidity.

Meanwhile, during the week credit institutions obtained more liquidity through the sale of Lm1 million worth of foreign currency to the Central Bank of Malta against Maltese lira.

In order to sterilise this surplus liquidity, on Friday, 14 October the Central Bank of Malta offered a seven-day term deposit auction. A total of Lm65.9 million bids were received, all of which were accepted.

This was Lm14.4 million higher than the Lm51.5 million that matured on the same day. The weighted average rate on these deposits remained unchanged at 3.2 per cent, which is the floor of the interest-rate band applied in the bank’s seven-day open market operations.

Interbank market

Interbank market activity remained brisk in the week under review, with total deals amounting to Lm7.7 million. This represented a marginal decline of Lm0.8 million over the amount transacted in the previous week. Interbank rates remained broadly unchanged.

Treasury bill market

As usual, the Government resorted to the primary market in order to make a partial rollover of the Lm12.3 million worth of 91-day Treasury bills that matured during the week. The market responded very positively to the new 91-day issue (to mature on 13 January 2006), with total bids amounting to Lm30.7 million. From these, the Treasury only accepted Lm7 million. As a result, the level of outstanding Treasury bills declined by Lm5.3 million, from Lm195.1 million to Lm189.8 million

Meanwhile the 91-day primary rate declined marginally by 0.65 basis points, from 3.255 per cent to 3.2485 per cent, reflecting the high bid-to-cover ratio. The new rate represents a bid price of Lm99.1966.

There was practically no activity in the secondary market for Treasury bills except for some negligible amounts that were transacted with the bank in its role as market maker.