Central Bank monetary operations

On Friday, 23 February, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm132.1 million from the banking system. This was Lm4.6 million less than the Lm136.7 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 injection of funds was in response to a decrease in liquidity in the banking system during the week under review. This decrease was mainly due to an issue of Treasury bills of Lm19.3 million, a negative net clearing of cheques totalling Lm2.9 million and the purchase of Lm2.2 million worth of foreign currency against the Maltese lira by the credit institutions from the bank. On the other hand, direct credits, mainly related to salaries of Lm13.7 million and a contraction in currency in circulation amounting to Lm3.5 million, partially offset these liquidity-reducing factors.

Interbank market

No interbank deals were reported during the week under review.

Treasury Bill market

In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 25 May 2007. Of the Lm25.3 million worth of bids submitted, Lm19.3 million were accepted. Since during the same week, no Treasury bills matured, the outstanding Treasury bills balance increased by the same amount to Lm160 million.

The resulting 91-day rate from this auction was 4.1006 per cent, up by 5.1 basis points from the previous week’s level. This reflected a bid price of Lm98.9880 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 91-day bills maturing on 1 June, while the following week it will invite tenders for 273-day bills maturing on 7 December 2007.

In the secondary market for Treasury bills, trading decreased to Lm2.3. million from the previous week’s level of Lm2.9 million. Most of this was transacted outside the bank.