Central Bank Monetary Operations

During the week ended 17 March, credit institutions started the new maintenance period (15 March-14 April) with a surplus in the reserve deposit accounts that they are legally bound to hold with the Central Bank of Malta. Furthermore, there was a Lm1.4 million net contraction in currency in circulation, which boosted the institutions’ liquidity further. These factors were partly offset by the net purchase of Lm3.1 million worth of foreign currency against the Maltese lira from the bank and a negative clearing of cheques totalling Lm3.4 million. In addition, there were net interbank deals, for a total of Lm6.3 million, with credit institutions that are exempt from holding reserves with the bank, which resulted in a further decrease from the relevant liquidity pool.

Responding to the overall increase in bank liquidity, the Central Bank of Malta, in the seven-day term deposit auction held at the end of the week, absorbed Lm106.5 million from the banking system. This was Lm23.2 million more than the Lm83.3 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 per cent-3.25 per cent) at which the bank conducts its term deposit auctions.

Interbank market

During the week, interbank activity increased substantially, with the value of transactions rising from Lm5.5 million in the previous week to Lm15.4 million. Three deals were struck in the 3 months tenor at a weighted average interest rate of 3.34 per cent, up by 54 basis points from the rate at which the previous three-month deal was transacted, on 29 September 2004. Two other deals were struck in the one-week tenor, at a weighted average rate of 3.16 per cent, up by one basis point from the rate of the one-week deal struck during the previous week. There was also one overnight deal, at a rate of 3.22 per cent, up by four basis points from a similar deal transacted the previous week.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 273-day bills maturing on 15 December 2006. From the Lm20.3 million worth of bids submitted, tenders for Lm1.3 million were accepted by the Treasury. Since only Lm0.2 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm1.1 million, from Lm185.9 million to Lm187 million.

The latest nine-month rate resulting from the week’s Treasury bill auction was 3.2721 per cent. This was 5.2 basis points lower than the previous rate for 273-day bills, those issued on 23 December 2005.

The latest rate reflected a bid price of Lm97.6111 per Lm100 nominal.

On Tuesday, 14 February, the Treasury invited tenders for 28-day bills maturing on 21 April 2006. In the following week, the Treasury will accept bids for 365-day bills to be issued on Thursday 30 March (Friday being a public holiday) and maturing on 30 March 2007.

As in the previous week, only negligible amounts of bills were traded in the secondary Treasury bill market, with the bank acting as market-maker.