Central Bank Monetary Operations
In the week ending 24 November, the Central Bank conducted a term deposit auction absorbing a total of Lm131.7 million, Lm11.2 million more than the amount that matured on the same day. The interest rate resulting from the auction was 3.7 per cent, being the floor of the band (3.7 per cent-3.75 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 liquidity in the banking system during the week under review. To begin with, credit institutions started the week with an overall surplus in their statutory reserve deposit accounts with the bank. In addition, the maturity of Malta Government Stocks totalling Lm10 million, government direct credits – mainly related to pensions and interest payments of Lm5.1 million, a contraction in currency in circulation totalling Lm1.9 million and the sale of Lm1.8 million worth of Treasury bills to the Bank in the secondary market boosted liquidity further. Slightly offsetting these
factors was the purchase of Lm1.7 million worth of foreign currency against the Maltese lira from the bank.
Interbank market
There was no interbank activity in the week under review, reflecting the strong liquidity position across the entire banking sector.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 23 February 2007. From the Lm21.1 million worth of bids submitted for the three-month bill, none were accepted by the Treasury, reflecting the Government’s strong liquidity position. Furthermore, as Lm1 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by the same amount to Lm163.4 million.
Today, the Treasury will invite tenders for 91-day bills maturing on 2 March 2007 and in the following week, it will accept bids for 92-day bills maturing on 9 March 2007.
Trading in the secondary market for Treasury bills rose from the previous week’s level of Lm0.1 million to Lm0.7 million. All deals were transacted with the bank in its role of market maker.