Central Bank Monetary Operations

On Friday, 18 August, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing a total of Lm174 million from the banking system. This was Lm41.8 million more than the Lm132.2 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 per cent-3.50 per cent) 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 in the week under review.

Credit institutions started the maintenance period (15August-14 September) with an overall surplus in their statutory reserve deposit accounts with the bank, while liquidity in the system was further boosted by the purchase of Lm23 million worth of foreign currency by the bank from credit institutions. These factors were partly offset by a negative clearing of cheques totalling Lm2.1 million and an increase in currency in circulation amounting to Lm1.2 million.

Interbank market

Interbank market activity was down slightly during the week, with turnover falling to Lm5.7 million from Lm6 million in the previous week. Of the eight deals concluded, six were effected in the overnight tenor at a weighted average interest rate of 2.92 per cent, 46 basis points lower than the weighted average interest rate on overnight deals in the previous week. The other two were struck in the one-week tenor at a rate of 3.41 per cent, unchanged from the rate on similar deals concluded in the previous week.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 17 November 2006. From the Lm14.6 million worth of bids submitted, none were accepted by the Treasury, reflecting the Government’s strong liquidity position. Since no bills matured during the week, the outstanding balance of Treasury bills remained unchanged at Lm143.7 million.

Meanwhile, in the secondary market for Treasury bills, turnover fell to Lm0.2 million, from Lm0.7million in the previous week. All deals were transacted with the bank in its role of market-maker.

On Tuesday, the Treasury invited tenders for 273-day bills maturing on 25 May 2007.