Central Bank Monetary Operations

On Thursday, 9 February (Friday being a public holiday), the Central Bank of Malta conducted an eight-day term deposit auction, absorbing a total of Lm101.5 million from the banking system. This was Lm10 million less than the Lm111.5 million worth of term deposits that matured on the same day. The rate resulting from the auction was 3.20 per cent, being the floor of the interest rate band (3.20-3.25 per cent) at which the bank conducts its term-deposit auctions.

Liquidity in the banking system had decreased in the week under review, mainly due to a net issue of Treasury bills totalling Lm7.4 million, a negative net clearing of cheques amounting to Lm1.9 million and an increase in currency in circulation of Lm1 million. Other factors that contributed were foreign exchange deals worth Lm2.4 million and net interbank deals of Lm3.3 million. These were both transacted with institutions that are not eligible for the bank’s open market operations and therefore lead to an outflow of funds from the relevant liquidity pool. These factors were partly offset by government direct credits of Lm4 million in respect of social security allowances and dividend payments.

Interbank market

During the week, overall interbank lending rose to Lm5.2 million, from Lm1.3 million in the previous week. These transactions were spread over a total of five deals, of which four were in the overnight tenor at a weighted average interest rate of 3.18 per cent, unchanged from the previous week. Another deal was transacted in the one-week tenor, and was struck at 3.28 per cent, for an increase of 10 basis points from the latest one-week deal, that transacted on 30 December 2005.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 183-day bills maturing on 11 August 2006. From the Lm45.3 million worth of bids submitted, tenders for Lm14.4 million were accepted by the Treasury. Since Lm7 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm7.4 million, from Lm165.9 million to Lm173.3 million.

The latest six-month rate resulting from the week’s Treasury bill auction was 3.2258 per cent. This was 0.8 basis points lower than the previous 182-day rate for bills issued on 16 December 2005. The latest rate reflected a bid price of Lm 98.4084 per Lm100 nominal.

Yesterday, the Treasury invited tenders for 91-day bills maturing on 19 May 2006. In the following week, the Treasury will accept bids for bills in the same tenor to be issued on 24 February 2006 and maturing on 26 May 2006.

Turnover in the secondary market for Treasury bills remained low, increasing slightly to Lm0.9 million, from the minimal amount transacted in the previous week. All trading was effected by the bank in its role of market-maker.