Central Bank Monetary Operations
On Friday 30 June 2006, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing a total of Lm147 million from the banking system, Lm8.5 million more than the Lm138.5 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 was in response to a further increase in liquidity in the banking system in the week under review. The main factors behind this were direct credits, mainly related to government pensions, amounting to Lm3.4 million and net maturing Treasury bills held by credit and financial institutions worth Lm5.3 million. In addition, credit institutions started the week with a surplus in their statutory reserve deposit accounts with the bank. These liquidity boosting factors were partly offset by a negative Lm5.1 million net clearing of cheques mainly related to payments of income tax arrears and VAT.
Interbank market
Turnover in the interbank market increased by Lm3.5 million during the week, with five deals for a total of Lm7.1 million being struck. Three deals were struck in the overnight tenor at a weighted average interest rate of 3.38%, 38 basis points higher than the rate on a similar deal concluded the week before. Two other deals were transacted in the one week tenor at a rate of 3.41%, 2 basis points lower than the rate at which a similar deal was struck the week before.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 363-day bills maturing on 28 June 2007. From the Lm17 million worth of bids submitted, Lm8.3 million were accepted by the Treasury. Since Lm16.8 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by Lm8.5 million to Lm121.3 million.
The latest one-year Treasury bill rate resulting from the week’s auction, the first for 363-day bills since the bank raised the central intervention rate, was 3.6953%, 23.8 basis points higher than the rate on similar bills issued on 30 March 2006. The latest rate reflected a bid price of Lm96.4552 per Lm100 nominal.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 6 October 2006. In the following week, the Treasury will accept bids for bills in the same tenor to be issued on 14 July 2006 and maturing on 13 October 2006.
In the week under review, turnover in the secondary market for Treasury bills amounted to Lm1 million, a slight increase from the Lm0.7 million recorded in the previous week. All deals were transacted with the bank in its role of market-maker.