Central Bank monetary operations

On Friday 22 December, the Central Bank of Malta conducted a seven-day term deposit auction in which it absorbed a total of Lm98.5 million from the banking system. This represented a decline of Lm34 million from the Lm132.5 million that matured on the same day. The interest rate resulting from the auction was 3.7 per cent, this 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 the further decline in liquidity in the banking system. The negative net clearing of cheques of Lm31.3 million, mainly related to income tax payments, and the purchase of foreign currency against the Maltese lira of Lm2.6 million were the principal factors that had a liquidity-reducing effect. Partially offsetting these factors were Government direct credits of Lm4.5 million mainly related to pensions and government bonuses, together with a contraction in currency in circulation of Lm1.7 million.

Interbank market

Notwithstanding the decline in liquidity, no interbank deals were conducted during the week under review in contrast to the previous week’s active dealing.

Treasury Bill market

In the primary market the Treasury invited tenders for 182-day bills maturing on 22 June 2007. While Lm25.8 million worth of bids were submitted, none were accepted by the Treasury given the government’s strong liquidity position. There were no bills maturing during this week and therefore this means that the outstanding balance of Treasury bills has remained stable at Lm160.5 million.

This week the Treasury invited tenders for 273-day bills maturing on 28 September 2007.

Trading in the secondary market for Treasury bills increased from the previous week’s level of Lm0.5 million to Lm0.8 million. All deals were transacted with the Bank in its role of market maker.