Central Bank Monetary Operations

On Thursday 7 December 2006 (Friday 8 December being a public holiday), the Central Bank conducted an eight-day term deposit auction absorbing a total of Lm138.7 million from the banking system. This was Lm6.8 million less 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 injection of funds was in response to a decrease in liquidity in the system during the week under review. To begin with, credit institutions started the week with an overall shortfall in their statutory reserve deposit accounts with the bank. Additionally, a Lm5.4 million increase in currency in circulation and purchases of foreign currency against the Maltese lira from the bank totalling Lm4 million drained liquidity further. Partly offsetting these factors were direct credits of Lm5.7 million, mainly related to pension payments, and net maturing Treasury bills held by credit and financial institutions worth Lm1.8 million.

Interbank market

In spite of the overall decrease in liquidity, no interbank deals were reported during the week.

Treasury bill market

In the primary market for Treasury bills, the Treasury invited tenders for 92-day bills maturing on 9 March 2007. From the Lm24.1 million worth of bids submitted for these bills, bids for Lm2.2 million were accepted by the Treasury. As Lm4.3 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by Lm2.1 million to Lm167 million.

The latest three-month rate resulting from the week’s Treasury bill auction was 3.9055 per cent. This was one basis point lower than the rate on the 91-day bills issued the previous week and reflected a bid price of Lm99.0252 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 364-day bills to be issued on 15 December and maturing on 14 December 2007. In the following week, the Treasury will accept bids for 182-day bills maturing on 22 June 2007.

Trading in the secondary market for Treasury bills decreased from the previous week’s level of Lm1.1 million to Lm0.5 million. All deals were transacted with the bank in its role as market-maker.