Central Bank monetary operations
On Friday 15 December, the Central Bank of Malta conducted a 7-day term deposit auction in which it absorbed a total of Lm132.5 million from the banking system. This was Lm6.2 million less than the Lm138.7 million 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 further decline in bank liquidity in the week under review. This was primarily due to the fact that credit institutions started the week with an overall shortfall in their statutory reserve deposit accounts with the bank, although purchases of foreign currency against the lira totalling Lm2.7 million, a negative net clearing of cheques of Lm2.2 million and an increase in currency in circulation of Lm1.4 million also contributed. These factors were partly offset by net maturing Treasury Bills held by credit and financial institutions worth Lm6.4 million and direct credits, mainly related to social security and dividend payments, of Lm4.8 million.
Interbank market
After three quiet weeks, there was a resurgence of interbank activity during the week under review, with four deals, for a total of Lm9.2 million being concluded. These were all in the overnight tenor, at a weighted average rate of 4.54 per cent – 79 basis points higher than the rate of 3.75 per cent on similar deals struck four weeks before.
Treasury bill market
In the primary market for Treasury bills, the Treasury invited tenders for 364-day bills maturing on 14 December 2007. From the Lm8.2 million worth of bids submitted, Lm1.2 million worth of bids were accepted by the Treasury. Since Lm7.8 million worth of bills matured on the same day, the outstanding balance of Treasury bills stood at Lm160.5 million, down by Lm6.6 million from the previous week.
The latest one-year rate resulting from the week’s auction was 4.1966 per cent, up 33 basis points from the last one-year rate of 3.8653 per cent – that on bills auctioned on 22 September, prior to the latest interest rate hike.
This reflected a bid price of Lm95.9830 per Lm100 nominal.
On Tuesday, the Treasury invited tenders for 182-day bills to be issued on 22 December and maturing on 22 June 2007. In the following week, the Treasury will invite bids for 273-day bills to be issued on 29 December and maturing on 28 September 2007.
Trading in the secondary market for Treasury bills remained at the Lm0.5 million level, same as in the previous week. All deals were transacted by the bank in its role of market maker.