Central Bank Monetary Operations
On Friday, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm136.7 million from the banking system. This was Lm5.8 million more than the Lm130.9 million that matured on the same day. The interest rate that resulted from the auction was 3.95 per cent, which is the floor of the interest rate band 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. Credit institutions started the new maintenance period (15 February-14 March 2007) with an overall surplus in their statutory reserve deposit accounts with the bank. In addition, net maturing Treasury bills totalling Lm3 million and a Lm1 million contraction in currency in circulation boosted liquidity further. Partly offsetting these factors was a negative net clearing of cheques amounting to Lm4.6 million.
Interbank market
In the interbank market, two deals for a total of Lm0.8 million were conducted in the overnight tenor at a weighted average interest rate of 3.96%, up by 21 basis points from the comparable rate on similar deals struck in the week ended 15 December 2006. These were the first two interbank deals transacted this year and the first since the 25 basis point increase in the Central Intervention Rate on 25 January 2007.
Treasury Bill market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 18 May 2007 and 182-day bills maturing on 17 August 2007. From the Lm31 million worth of bids submitted for the three-month bill, bids for Lm18.9 million were accepted by the Treasury, while from the Lm16.9 million worth of bids submitted for the six-month tenor, bids for Lm4.3 million were accepted. Given that Lm26.2 million bills matured during the week, the outstanding balance of Treasury bills increased by Lm3 million to Lm140.7 million.
The latest three-month rate resulting from the week’s Treasury bill auction was 4.0495%. This was one basis point higher than the rate on the 91-day bills issued on 2 February 2007 and reflected a bid price of Lm99.0005 per Lm100 nominal. The latest rate for the six-month bill was 4.1931%, 20 basis points higher than the previous rate on similar bills, those issued on 10 November 2006. The latest yield reflected a bid price of Lm97.9520 per Lm100 nominal. This was the first auction for the six-month tenor since the last interest rate increase by the central bank.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 25 May.
In the secondary market for Treasury bills, trading increased to Lm2.9 million from the previous week’s level of Lm0.1 million. Most of this was transacted outside the central bank.