Central Bank monetary operations

In the week ending 17 November 2006, the Bank conducted a term deposit auction absorbing a total of Lm120.5 million, Lm25.1 million less than the amount that matured on the same day. The rate resulting from the auction was 3.7 per cent, being the floor of the interest rate band (3.7 per cent-3.75 per cent) at which the bank is currently conducting its term deposit auctions.

The net injection of funds was in response to a further substantial decline in bank liquidity during the week under review. The main factors behind this were a net issue of Treasury bills totalling Lm22.8 million belonging to credit and financial institutions, a negative net clearing of cheques of Lm2.1 million, and the purchase of foreign currency against the Maltese lira from the bank amounting to Lm2.2 million. Partly offsetting these factors was an overall surplus in the credit institutions’ statutory reserve deposit accounts with the bank at the start of the new maintenance period (15 November to 14 December) and a Lm2.3 million net contraction in currency in circulation.

Interbank market

Interbank activity decreased from Lm2.6 million to Lm0.2 million during the week. Only one deal was effected, in the one-week tenor, at an interest rate of 3.59 per cent. This was seven basis points higher than the weighted average rate on similar deals struck in the week ended 27 October.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 16 February 2007. From the Lm27.2 million worth of bids submitted for the three-month bills, bids for Lm26.2 million were accepted by the Treasury. Given that Lm3 million bills matured during the week, the outstanding balance of Treasury bills increased by Lm23.2 million to Lm164.4 million.

The latest three-month rate resulting from the week’s Treasury bill auction was 3.8985 per cent. This was 16 basis points higher than the rate on the 91-day bills issued on 3 November, and reflected a bid price of Lm99.0374 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 91-day bills maturing on 23 February 2007.

Trading in the secondary market for Treasury bills decreased from the previous week’s level of Lm0.7 million to Lm0.1 million. All deals were transacted with the bank in its role of market-maker.