Central Bank Monetary Operations
Excess liquidity in the banking system decreased in the week under review. Credit institutions started the week under review with a shortfall in the reserve deposit accounts that they are legally bound to hold with the Central Bank of Malta.
Moreover, there was an increase in currency in circulation amounting to Lm5.5 million and the net issue of Treasury Bills of Lm2.3 million which decreased liquidity further. Partially offsetting this decrease in liquidity were government direct credits, mainly related to pensions, totalling Lm5.1 million.
On Friday, 9 December, the bank offered the usual seven-day term deposit auction as the banking system continued to experience excess liquidity.
The amount absorbed from the banking sector was Lm12.8 million less than the Lm99.5 million which matured on the same day.
As a result of the auction, the credit institutions’ outstanding term deposits with the bank amounted to Lm86.7 million. The rate resulting from the latest absorption auction remained unchanged at 3.20 per cent, being the floor of the interest rate band (3.20 per cent – 3.25 per cent) at which the bank conducts its absorption auctions.
Interbank market
Interbank activity in the week remained low, as in the previous week.
Although, three deals were effected in the overnight tenor, the total amount transacted was negligible and amounted to only Lm0.5 million. The rates remained practically unchanged.
Treasury bill market
In the primary market, the Government offered a 91-day Treasury bill auction to mature on 10 March 2006. From the Lm20 million worth of bids submitted, the Treasury accepted Lm10 million.
Given that Lm7.7 million worth of bills matured during the week under review, the outstanding balance of Treasury bills increased by Lm2.3 million, from Lm178.8 million to Lm181.1 million.
The latest three-month rate resulting from this auction was 3.2188 per cent.
This was 2.7 basis points higher than the last 91-day rate for bills issued the previous week.
The latest rate reflects a bid price of Lm99.2039 per Lm100 nominal.
Turnover in the secondary market remained unchanged from the level of the previous week and amounted to only Lm0.2 million.
All trading was effected by the bank in its role of market-maker.