Central Bank Monetary Operations

On Friday, 2 June, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing a total of Lm100.4 million, Lm22.3 million more than the Lm78.1 million that matured on the same day. The rate resulting from the auction was 3.45 per cent, being the floor of the interest rate band (3.45per cent to 3.50 per cent) at which the Bank is currently conducting its term deposit auctions.

The net absorption of funds was in response to a significant increase in liquidity in the banking system during the week under review. This mainly resulted from net maturing Treasury bills held by credit and financial institutions amounting to Lm18.7 million and direct credits relating to pensions and social security payments of Lm3.6 million.

In addition, credit institutions started the week with a surplus in the reserve deposit accounts that they are legally bound to hold with the bank. These liquidity boosting factors were only partly offset by a Lm4.3 million negative clearing of cheques, the purchase of Lm2.3 million worth of foreign currency against the Maltese lira from the bank and net currency withdrawals of Lm2.3 million.

Interbank market

Interbank transactions rose to Lm2.5 million during the week, from Lm1.4 million in the previous week.

Of the two deals concluded, one was effected in the one-week tenor at a rate of 3.21 per cent, down by 22 basis points from the rate at which a similar deal was struck in the previous week. The other was executed in the two-week tenor at a rate of 3.43 per cent, up by 13 basis points from the rate on the previous 14-day interbank deal, that effected on 21 October 2005.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 1 September 2006. From the Lm31.7 million worth of bids submitted, bids for Lm3 million were accepted by the Treasury. Since Lm25 million worth of bills matured during the week, the outstanding balance of Treasury bills was reduced by Lm22 million to Lm145 million.

The interest rate resulting from the week’s Treasury bill auction was 3.4549 per cent, an increase of 21.9 basis points from the rate on 91-day bills that were issued the previous week. The rise partly reflected the increase in the bank’s Central Intervention Rate on 25 May 2006. The latest three-month Treasury bill rate reflected a bid price of Lm99.1460 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 90-day bills maturing on 7 September 2006. In the following week the Treasury will accept bids for 91-day bills issued on 16 June 2006 and maturing on 15 September 2006.

Turnover in the secondary market for Treasury bills rose to Lm1.8 million during the week under review, from Lm1.2 million in the previous week.

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

MaRIS statistics for the month of May 2006

During the month of May 4,478 payment messages were processed through MaRIS, for a total value of Lm1,221.4 million. Of these, 1,957 were in respect of payments on behalf of customers for a value of Lm59.9 million and 2,521 were interbank payments for a total value of Lm1,161.5 million. The daily volume average for the month was 204 messages, for a value of Lm55.5 million.

The highest number of messages was processed on 4 May, with 276 messages, while the peak value was recorded on 19 May, with Lm194.6 million.

Further details can be found on the Central Bank of Malta website: www.centralbankmalta.com