Central Bank Monetary Operations
On Friday, 23 June 2006, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing a total of Lm138.5 million from the banking system, Lm37 million more than the Lm101.5 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 is currently conducting its term deposit auctions.
The net absorption of funds was in response to a substantial increase in bank liquidity during the week under review.
To begin with, credit institutions started the week with a surplus in their statutory reserve deposit accounts with the Bank.
Then there was a transfer of part of the Government’s Maltese lira Sinking Fund from the Bank to the credit institutions.
In addition, Government direct credits amounting to Lm4.3 million in respect of pensions and net maturing Treasury bills of Lm3.4 million boosted bank liquidity further.
Partly offsetting these factors were a negative net clearing of cheques amounting to Lm4.6 million, purchases of foreign currency totalling Lm1.9 million and an increase in currency in circulation of Lm1.8 million.
Interbank market
Interbank activity declined sharply during the week, falling to Lm3.6 million from Lm7 million in the previous week.
Three deals were struck, all in the overnight tenor, at a weighted average interest rate of 3.03%.
This represented a decrease of 40 basis points from the rate at which similar deals were struck in the previous week.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 273-day bills maturing on 23 March 2007. From the Lm16.7 million worth of bids submitted, tenders for Lm4.7 million were accepted by the Treasury. Since Lm9.9 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by a further Lm5.2 million to Lm129.8 million.
The latest nine-month rate resulting from the week’s Treasury bill auction, the first for 273-day bills since the Bank raised the central intervention rate, was 3.4711%, 19.9 basis points higher than the rate on similar bills issued on 17 March 2006. The latest rate reflected a bid price of Lm97.4695 per Lm100 nominal.
On Tuesday, the Treasury invited tenders for 363-day bills maturing on 28 June 2007.
Turnover in the secondary market for Treasury bills decreased to Lm0.7 million during the week, from the Lm4.4 million recorded in the previous week. All trading was effected by the Bank in its role of market-maker.