Central Bank Monetary Operations

Last Friday, the Central Bank of Malta conducted a term deposit auction during which it absorbed a total of Lm121 million from the banking system. This was Lm11.5 million more than the Lm109.5 million worth of term deposits that matured on the same day. The rate resulting from the auction was 3.20 percent, being the floor of the interest rate band (3.20 percent–3.25 percent) at which the Bank conducts its term deposit auctions.

During the preceding week, liquidity in the banking system had continued on its upward trend for the second consecutive week. The main factors contributing to the increase were Government direct credits, mainly relating to salaries, totalling Lm13.3 million and a Lm2.5 million contraction in currency in circulation. Other contributory factors were foreign exchange deals worth Lm2 million and other inflows of Lm6.2 million. The latter were both transacted with institutions that are not eligible for participation in the Bank's term deposit auctions and therefore lead to an inflow of funds to the relevant liquidity pool. Partly offsetting these factors was an Lm11.6 million net issue of Treasury bills (affecting eligible counterparties) and a negative net cheque clearing of Lm1.3 million.

Interbank market

During the week, interbank activity increased to Lm4.7 million, from the Lm2.8 million of the previous week. A total of four deals were struck: two were effected in the overnight tenor, at a weighted average interest rate of 3.24 percent, two basis points higher than in the previous week. The other two were transacted in the one-week tenor at a weighted average interest rate of 3.17 percent, six basis points lower than the one-week deal 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 26 May 2006. From the Lm45.3 million worth of bids submitted, tenders for Lm15.3 million were accepted by the Treasury. Since Lm9 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm6.3 million, from Lm173.3 million to Lm179.6 million.

The latest 3-month rate resulting from the week's Treasury bill auction was 3.1829%. This was 0.7 basis points higher than the previous 91-day rate for Treasury bills. The latest rate reflected a bid price of Lm99.2127 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 91-day bills maturing on 2 June 2006. In the following week, the Treasury will accept bids in the same tenor to be issued on 10 March 2006 and maturing on 9 June 2006.

Turnover in the secondary market for Treasury bills amounted to Lm1.2 million, which is Lm2.3 million lower than the Lm3.5 million turnover recorded in the previous week. All deals were effected by the Bank in its role as market maker.