Central Bank monetary operations

The level of excess liquidity in the banking system remained practically unchanged from the previous week’s level. Credit institutions began the week under review with a shortfall in the reserve deposit requirement which they are legally bound to hold with the Central Bank of Malta. Moreover, there was a negative net clearing of cheques amounting to Lm1.7 million, which reduced liquidity further. This decrease in liquidity was largely offset by net maturing Treasury bills totaling Lm9.5 million and government direct credits, mainly related to Malta Government Stocks interest payments, of Lm5 million.

Consequently, on Friday 25 November the bank conducted a term deposit auction in order to absorb the surplus liquidity. The total amount absorbed was Lm74.3 million, Lm0.7 million lower than the Lm75 million that matured on the same day, leaving an outstanding balance of Lm74.3 million. The 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 increased considerably, amounting to Lm13.7 million, Lm10.4 million more than the Lm3.3 million transacted in the previous week. Two deals were dealt in the overnight tenor at a weighted average rate of 3.25 per cent, while one deal was conducted in the one-week tenor, also at 3.25 per cent. Another deal in the one-month tenor was dealt at 3.25 per cent, while another deal for 131 days was transacted at 3.3 per cent.

Treasury bill market

In the primary market, the Government invited tenders for 364-day Treasury bills to mature on 24 November 2006. From a total of Lm31 million worth of bids submitted, the Treasury accepted, as in the previous week, an amount of Lm1 million. This reflected the Government’s strong cash position during the week. As a result, the level of outstanding Treasury bills declined by a further Lm11 million to Lm173 million.

The 364-day primary rate was 3.2212 per cent, which reflected a substantial fall of 17.8 basis points from the previous rate issued on 30 September 2005. The corresponding price was of Lm96.8876 per Lm100 nominal.

Turnover in the secondary market for Treasury bills fell sharply in the week under review and amounted to only Lm0.5 million, Lm11 million less than the amount dealt last week. All deals were effected with the bank in its role as market maker.