Central Bank Monetary Operations

In the week under review, liquidity in the banking system declined from the very high figure of the previous week, albeit still remaining at a relatively buoyant level.

This decline was mainly due to the fact that credit institutions began the week with a shortfall in the reserve deposit requirement which they are legally bound to hold with the Central Bank of Malta. Moreover, there were currency withdrawals of Lm1.6 million, which further reduced liquidity.

These liquidity-absorbing factors were partially offset by transfers from the Government to the banking sector, namely Lm5.2 million net maturing Treasury bills belonging to credit and other financial institutions, and direct credits in relation to retirement pensions and children’s allowances amounting to Lm3.8 million.

Consequently, on Friday, 11 November, the Central Bank of Malta conducted a term deposit auction in order to absorb the surplus liquidity. A total of Lm76.6 million was absorbed from the banking system, bringing down the level of outstanding term deposits by Lm36.9 million from the Lm113.5 million of the previous week. The rate on these term deposits remained fixed at 3.2 per cent, which represents the floor of the interest-rate band applied in the bank’s weekly auctions for seven-day money.

Interbank market

There was no activity in the interbank market during the week reviewed.

This reflects the high surplus liquidity prevailing across the banking system.

Treasury bill market

During the week under review, the Government offered a 90-day Treasury bill auction to finance its short-term borrowing requirements. The market responded very positively to this issue, with a total of Lm37.8 million bids being submitted. From these, the Treasury accepted Lm7 million. On the same day, Lm15 million worth of bills matured and, as a result, the level of outstanding Treasury bills declined by Lm8 million to Lm188.9 million.

The primary rate for the 90-day Treasury bill was 3.2294 per cent, representing a marginal decline of 0.16 basis points from the previous 91-day rate of 3.2310 per cent transacted a week ago. The corresponding bid price for this latest rate is Lm99.21 per Lm100 nominal.

During the week under review, turnover in the

secondary market for Treasury bills amounted to Lm1.6 million. These entirely represented sales to the bank in its role of market maker for Malta Government securities.