Central Bank Monetary Operations

On Wednesday, 27 September 2006, following the monthly 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 3.50 per cent (see www.centralbankmalta.com).

On Friday, 29 September, the bank conducted a seven-day term deposit auction, absorbing a total of Lm151.5 million from the banking system. This was Lm12.6 million more than the Lm138.9 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 an increase in bank liquidity during the week under review. In fact, credit institutions started the week with an overall surplus in their statutory reserve deposit accounts with the bank. In addition, direct credits totalling Lm3.8 million, a Lm2.1 million contraction in currency in circulation and net maturing Treasury bills worth Lm2.4 million further boosted liquidity. Partly offsetting these factors was a negative net clearing of cheques amounting to Lm3.8 million.

Interbank market

Interbank activity remained practically unchanged during the week, with turnover decreasing marginally to Lm10.8 million, from Lm10.9 million in the previous week. Of a total of seven deals, three were effected in the overnight tenor, at a weighted average interest rate of 3.35 per cent, that is eight basis points lower than the weighted average rate on overnight deals in the previous week. The other four deals were conducted in the one-week tenor at a weighted average rate of 3.38 per cent, up by 19 basis points from the weighted average rate on similar deals effected in the previous week.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 28-day bills maturing on 27 October and 182-day bills maturing on 30 March 2007. From the Lm18 million worth of bids submitted for the one-month bill, bids for Lm0.1 million only were accepted by the Treasury, while from the Lm23 million worth of bids submitted for the six-month tenor, bids for Lm0.5 million were accepted. This reflected the government’s strong liquidity position. Given that Lm3 million bills matured during the week, the outstanding balance of Treasury bills decreased by Lm2.4 million to Lm153.6 million.

The latest one-month rate resulting from the week’s Treasury bill auction was 3.5501 per cent. This was 28.8 basis points higher than the rate on 28-day bills issued on 12 August 2005 and reflected a bid price of Lm99.7284 per Lm100 nominal. This was the first auction for 28-day bills since the rate rise by the bank on 25 May. The latest rate for the six-month tenor was 3.7499 per cent, four basis points lower than the previous rate on six-month bills, those issued on 15 September 2006. This yield reflected a bid price of Lm98.1645 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 274-day bills maturing on 6 July 2007. In the following week, the Treasury will accept bids for 91-day bills maturing on 12 January 2007 and 182-day bills maturing on 13 April 2007.

Trading in the secondary market for Treasury bills fell from Lm2.7 million to negligible amounts in the week under review. All deals involved the bank, in its role of market-maker.

Malta Real-time Interbank Payment System (MaRIS) – September 2006

During the month of September 2006, 4,025 payment messages were processed through MaRIS, for a total value of Lm2,215.4 million. Of these, 1,788 were payments on behalf of customers, for a value of Lm96.5 million and 2,237 were interbank payments totalling Lm2,118.9 million. The daily volume average for the month was 212 messages for a value of Lm116.6 million. The highest number of messages was processed on 29 September, with 320 messages, while the highest value was registered on 1 September, with Lm397.5 million.

Further details can be found on the Central Bank of Malta website: www.centralbankmalta.com