Central Bank Monetary Operations

On Friday 9 June 2006, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing a total of Lm104.9 million from the banking system, Lm4.5 million more than the Lm100.4 million that matured on the same day. The rate resulting from the auction was 3.45%, being the floor of the interest rate band (3.45%-3.50%) at which the bank conducts its term deposit auctions.

The net absorption was in response to a further increase in bank liquidity during the week under review.

Credit institutions started the week with a slight surplus in the reserve deposit accounts which they are legally bound to hold with the bank. In addition, maturing Treasury bills held by credit and financial institutions worth Lm4.9 million, the sale Lm1.2 million worth of Treasury bills in the secondary market and government direct credits of Lm1.9 million relating to pensions boosted bank liquidity further.

On the other hand, liquidity-absorbing factors included a Lm1.7 million expansion in currency in circulation and a negative net clearing of cheques of Lm2.5 million.

Interbank market

Interbank transactions were down by Lm0.8 million from the previous week’s level to Lm1.6 million. Of the four deals concluded, three were effected in the overnight tenor at a weighed average interest rate of 3.37%, up by 19 basis points from the rate at which a similar deal was struck in the previous week. The other deal was transacted in the one-year tenor at a rate of 3.80%. Transactions in the one-year tenor are very uncommon in the local interbank market and, indeed, the previous such deal had been transacted in May 1998 at a rate of 5.75%, 30 basis points higher than the bank’s Central Intervention Rate at that time.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 90-day bills maturing on 7 September 2006.

From the Lm14.5 million worth of bids submitted, none were accepted due to the government’s strong cash position.

Since Lm5 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by the same amount to Lm140 million.

Yesterday, the Treasury invited tenders for 91-day bills maturing on 15 September 2006. In the following week the Treasury will accept bids for 273-day bills to be issued on 23 June 2006 and maturing on 23 March 2007.

Turnover in the secondary market for Treasury bills rose to Lm2.2 million during the week reviewed, from Lm1.8 million in the previous week.

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