Central Bank Monetary Operations
On Friday, 28 July, following the meeting with the Monetary Policy Advisory Council, the governor of the Central Bank of Malta decided to leave the bank’s Central Intervention Rate unchanged at 3.5 per cent. On the same day, the bank conducted a seven-day term deposit auction, absorbing a total of Lm139 million from the banking system.
This was Lm13.6 million less than the Lm152.6 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 (3.45-3.50 per cent) at which the bank is currently conducting its term deposit auctions.
The net injection of funds was in response to a decline in bank liquidity during the week. This stemmed from the fact that credit institutions had started the week with an overall shortfall in their statutory reserve deposit accounts with the bank. In addition, initial payments connected with purchases of Malta Government Stocks resulted in deposit withdrawals of Lm8.4 million, and liquidity was further reduced by a negative clearing of cheques of Lm2.4 million.
Nevertheless, liquidity in the banking system remained relatively high due to maturing term deposits, direct credits of Lm2 million relating to social security allowances and the sale of Treasury bills in the secondary market of Lm1 million.
Interbank market
Turnover in the interbank market increased by another Lm0.2 million in the week under review, reaching Lm4.3 million. Of the six deals concluded, five were effected in the overnight tenor at a weighted average interest rate of 3.4169 per cent. This was 11.91 basis points higher than the comparable weighted average interest rate of the previous week. The other deal was struck in the one-week tenor at a rate of 3.43 per cent, unchanged from the previous week.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 27 October 2006. From the Lm13.4 million worth of bids submitted, Lm7.4 million were accepted by the Treasury. Since Lm7.5 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased marginally by Lm0.1 million to Lm134.4 million.
The latest three-month Treasury bill rate resulting from the week’s auction was 3.6251 per cent, or 5.18 basis points higher than the rate on similar bills issued on 21 July 2006. The latest rate reflected a bid price of Lm99.1043 per Lm100 nominal.
Turnover in the secondary market for Treasury bills increased to Lm1.4 million, from Lm0.7 million in the previous week. All deals were transacted with the bank in its role of market-maker.
Yesterday, the Treasury invited tenders for 91-day bills maturing on 3 November 2006. Next week, applications will be received for 91-day bills maturing on 10 November 2006 and 182-day bills maturing on 9 February 2007.