Central Bank Monetary Operations

On Friday 6 October, the bank conducted a seven-day term deposit auction, absorbing a total of Lm140.1 million from the banking system. This was Lm11.4 million less than the Lm151.5 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 reduction in the amount absorbed by the bank in effect represented a net injection of funds which was in response to a decline in bank liquidity during the week under review. Credit institutions started the week with an overall shortfall in the statutory reserve deposit accounts held with the bank. Other liquidity-reducing factors included a negative net clearing of cheques of Lm13 million, mainly related to income tax and customs duty payments, and a net issue of Treasury bills of nearly Lm1 million. Partly offsetting these factors were government direct credits in respect of salaries amounting to Lm11.3 million and Malta Government Stock interest payments totalling Lm5.6 million.

Interbank market

Interbank activity increased during the week, with turnover rising to Lm14.1 million, from Lm10.8 million in the previous week. Out of a total of eleven deals, six were effected in the overnight tenor, at a weighted average interest rate of 3.38 per cent, 3 basis points higher than the weighted average rate on overnight deals during the previous week. The other five deals were struck in the one-week tenor at a weighted average rate of 3.37 per cent, down by 1 basis point 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 273-day bills maturing on 6 July 2007. From the Lm32.1 million worth of bids submitted, tenders for Lm9.8 million were accepted by the Treasury. Given that during the same week Lm10 million worth of bills matured, the outstanding balance of Treasury bills remained practically unchanged at Lm153.4 million. The latest rate on 273-day Treasury bills was 3.8196 per cent, down by 7 basis points from the previous nine-month Treasury bill rate, that on bills issued on 7 September. The latest rate reflected a bid price of Lm97.2225 per Lm100 nominal.On Tuesday, the Treasury invited tenders for 91-day bills maturing on 12 January 2007 and for 182-day bills maturing on 13 April 2007. In the following week, the Treasury will accept bids for 28-day bills maturing on 17 November 2006 and for 91-day bills maturing on 19 January 2007.

Trading in the secondary market for Treasury bills during the week under review remained at insignificant levels, as in the previous in the week.