Central Bank Monetary Operations

On Thursday, 29 December 2005, the Governor of the Central Bank of Malta, following the monthly meeting with the Monetary Policy Advisory Council, decided to leave the Bank’s central intervention rate unchanged at 3.25 per cent (see www.centralbankmalta.com).

The bank conducted a seven-day term deposit auction on Friday, 30 December, absorbing Lm 46.8 million. This was slightly more than the amount of Lm45 million worth of term deposits, which matured on the same day. The period reviewed reported a small increase in short-term excess liquidity in the banking system, as credit institutions started the week with a surplus in the reserve deposit requirement account,s which they are legally bound to hold with the bank. Furthermore, there were government direct credits, mainly related to salaries amounting to Lm11.8 million. Partially offsetting this increase in liquidity were the issue of Treasury bills totalling Lm7.8 million, the purchase of foreign currency against the Maltese lira of Lm2.1 million by credit institutions and a negative net clearing of cheques of Lm1.8 million. The rate resulting from the latest auction was 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

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

Treasury bill market

In the primary market, the Treasury invited tenders for 90-day Treasury bills to mature on 30 March, 2006. From the Lm35.7 million worth of bids submitted, Lm7.8 million were accepted by the Treasury. Given that no bills matured during the week under review, the outstanding balance of Treasury bills increased by the same amount, from Lm182.5 million to Lm190.2 million.

The latest three-month rate resulting from this auction was 3.2150%. This was 0.4 basis points lower than the previous 91-day rate for bills issued on 9 December, 2005.

The latest rate reflects a bid price of Lm99.2135 per Lm100 nominal.

On Tuesday, the Treasury received applications for 91-day bills to mature on 7 April, 2006 and 364-day bills maturing on 5 January, 2007. For the following week, the Treasury will accept bids for 90-day bills to mature on 13 April, 2006.

Turnover in the secondary market decreased sharply from the previous week’s level of Lm13.6 million to Lm0.2 million.

All trading was effected by the bank in its role of market-maker.