Central Bank Monetary Operations

Credit institutions experienced a substantial increase in liquidity during the week reviewed boosted by the payment of Lm13 million in Government salaries, net maturing Treasury bills amounting to Lm4.2 million, and the sale of Lm3.9 million worth of bills in the secondary market. Another factor contributing to the liquidity increase was the fact that banks started the new maintenance period (15 June-14 July 2006) with a slight surplus in their statutory reserve deposit accounts with the Bank. Against these factors, there was a negative clearing of cheques of Lm1.7 million.

Despite the resulting increase in bank liquidity, outstanding term deposits held with the Central Bank of Malta decreased as credit institutions preferred to leave excess funds, to the tune of over Lm18 million, in their reserve deposit accounts with the Bank. In fact, during the seven-day term deposit auction conducted by the Bank on Friday, 16 June 2006, a total of Lm101.5 million was absorbed from the banking system. This was Lm3.4 million less than the Lm104.9 million worth of term deposits 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 (3.45 per cent-3.50 per cent) at which the Bank is currently conducting its term deposit auctions.

Interbank market

Interbank activity picked up in the week under review, with the volume of transactions rising to Lm7 million, from Lm1.7 million in the previous week. Of the five deals concluded, two were in the one-week tenor at a weighted average interest rate of 3.42 per cent, 0.8 basis points lower than the rate on a similar deal transacted the week before.

The remaining deals were struck in the overnight tenor at a weighted average interest rate of 3.39 per cent, eight basis points down from the rate at which a similar deal was 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 15 September 2006. From the Lm14.9 million worth of bids submitted, none were accepted, as the Government’s cash position remained strong. Since Lm5 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by the same amount to Lm135 million.

On Tuesday, the Treasury invited tenders for 273-day bills maturing on 23 March 2007.

In the following week the Treasury will accept bids for 363-day bills to be issued on 30 June 2006 and maturing on 28 June 2007.

In the week under review the Bank, in its role of market-maker, purchased Lm4.4 million worth of bills in the secondary market.

In comparison to the previous week, this represented a Lm2.2 million increase in turnover in the market.