Central Bank monetary operations

Liquidity in the banking sector continued to increase during the week reviewed, largely due to further sales of foreign currency to the Central Bank of Malta against Maltese liri amounting to Lm7.8 million, and the net repayment of Lm5.7 million worth of Treasury bills. Other factors that contributed to this rise in liquidity were a decline in the level of cash in circulation of Lm1.3 million, a positive clearing of cheques, also of Lm1.3 million, and Treasury payments which amounted to Lm1.2 million.

Accordingly, on Friday, 28 October, the bank conducted a term deposit auction in order to absorb the surplus liquidity. The total amount absorbed was Lm12.1 million higher than the Lm73.6 million that matured on the same day. As a result, the level of outstanding term deposits held with the bank increased to Lm85.7 million. The weighted average rate on these deposits remained unchanged at 3.2 per cent, which

represents the floor of the interest-rate band applied in the bank’s seven-day open market operations.

Interbank market

Interbank market activity declined from the very high levels of the previous week. Total turnover amounted to Lm5.2 million, or Lm11.1 million less than the Lm16.3 million of the previous week. Rates were also considerably lower than those of the previous weeks, reflecting the rise in the volume of surplus liquidity. One deal in the overnight tenor was, in fact, struck at a rate 25 basis points lower than that of a fortnight ago, while the weighted average rate of the other two deals, effected for a one-week tenor, was 11 basis points lower than that of last week.

Treasury bill market

In the primary market, the Government offered a 182-day Treasury bill auction to partially rollover the Lm8.7 million Treasury bills that matured during the week. From the Lm35.9 million worth of bids submitted, the Treasury accepted only Lm3 million, reflecting the Government’s strong cash position during the week. As a result, the level of outstanding Treasury bills declined by a further Lm5.7 million to Lm180.1 million.

The 182-day primary rate was 3.239 per cent, 2.1 basis points lower than the previous rate issued on 16 September. The corresponding price was of Lm98.4106 per Lm100 nominal.

Today the Treasury will offer an

auction of 91-day Treasury bills to mature on 3 February 2006. In the

following week, the Treasury will receive bids for 90-day bills that will mature on 9 February 2006.

Turnover in the secondary market for Treasury bills increased considerably in the week under review and amounted to Lm3.2 million, Lm3 million more than last week. All deals were effected with the bank in its role as market maker.