Central Bank monetary operations
On 20 January, the Central Bank of Malta conducted a term deposit auction during which a total of Lm94.4m was absorbed from the banking system.
This was Lm9.5m more than the Lm84.9m worth of term deposits that matured on the same day. The net absorption was in response to a further increase in liquidity in the banking system during the week.
On aggregate, credit institutions started the week with a slight surplus in the reserve deposit accounts that they are legally bound to hold with the Bank.
In addition, their liquidity was further boosted by net maturing Treasury bills worth Lm11m and the sale of Lm2.1m worth of Treasury bills to the Bank in the secondary market. Moreover, direct credits of Lm3.4m relating to invalidity pensions and a Lm2.9m contraction in currency in circulation increased bank liquidity further.
These factors were partly offset by a negative clearing of cheques amounting to Lm3.5m and the purchase of foreign currency by eligible counterparties to the tune of Lm5.4m.
Interbank market
The week under review saw an increase in interbank activity, from the Lm0.3m transacted in the previous week to Lm2.94m. A total of four deals were effected all of them in the overnight tenor, at a weighted average interest rate of 3.2493 per cent. This represented an increase of 2.9 basis points over the rate at which a similar deal was struck in the previous week.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 21 April 2006. From the Lm36.3m worth of bids submitted, only Lm1m was accepted. This was due to the continued strong position of government liquidity.
Since Lm12m worth of bills matured in the course of the week, the outstanding balance of Treasury bills decreased by Lm11m, from Lm176.7m to Lm165.7m.
The latest three-month rate resulting from this week’s Treasury bill auction was 3.1678 per cent. This was 4.43 basis points lower than the previous 90-day rate for bills issued in the previous week, with the drop being partly due to the high bid-offer ratio.
The latest rate reflected a bid price of Lm99.2164 per Lm100 nominal. Yesterday, the Treasury invited tenders for 91-day bills maturing on 28 April 2006.
Meanwhile, turnover in the secondary market for Treasury bills rose to Lm3m, with the Bank being a net purchaser of Lm1.5m.
This represented a considerable increase from the minimal amount of Lm26,000 transacted in the previous week.
All trading was effected by the Bank in its role of market-maker.