Central Bank Monetary Operations

In the week under review, short-term excess liquidity in the banking system picked up once again, following the fall in the previous week. Credit institutions started the reserve deposit requirement maintenance period (15 December 2005-14 January 2006) with an excess in the reserve deposits which they are legally bound to hold with the Central Bank of Malta. Moreover, there were Lm10.8 million net maturing Treasury bills and direct credits in relation to Government bonuses amounting to Lm1.6 million, which further increased liquidity. Partly offsetting this increase in liquidity was a negative net clearing of cheques amounting to Lm1.5 million.

Consequently, on Friday, 16 December, the Central Bank of Malta conducted a seven-day term deposit auction in order to absorb the surplus liquidity. A total of Lm94 million was absorbed from the banking system, increasing the level of outstanding term deposits by Lm7.3 million from the Lm86.7 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.

Interbank market

Interbank activity in the week under review increased sharply, from Lm0.5 million in the previous week to Lm4.1 million. Four deals were struck in the overnight tenor at a weighted average rate of 3.2406 per cent. This was four basis points higher than the previous overnight deal transacted in the previous week.

Treasury bill market

During the week under review, the Government offered a 182-day Treasury bill auction to finance its short-term borrowing requirements. From a total of Lm34.8 million bids submitted, the Treasury accepted only Lm5 million. On the same day, Lm15.8 million worth of bills matured and, as a result, the level of outstanding Treasury bills declined by Lm10.8 million from Lm181.1 million to Lm170.3 million, the lowest balance held so far this year.

The primary rate for the 182-day Treasury bill was 3.2338 per cent, representing a marginal decline of 0.5 basis points from the previous 182-day rate of 3.2390 per cent recorded on 28 October. The corresponding bid price for this latest rate is Lm98.4131 per Lm100 nominal.

During the week under review, turnover in the secondary market for Treasury bills amounted to Lm0.9 million against the Lm0.1 million transacted the week before.

The latest amount was in respect of purchases by the bank in its role of market maker for Malta Government Securities.