Central Bank Monetary Operations

On Friday, 18 May, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm101 million from the banking system. This was Lm18.4 million more than the Lm82.6 million that matured on the same day. The interest rate resulting from the auction was 3.95 per cent, which is the floor of the 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 under review. The main contributing factors were direct credits amounting to Lm13 million, mainly relating to government salaries, sales of Malta Government stocks and Treasury bills in the secondary market to the tune of Lm8.8 million and a Lm3.2 million contraction in currency in circulation. Largely offsetting these factors was a negative net clearing of cheques of Lm6.8 million, Lm5.1 million net issue of Treasury bills and purchases of foreign currency against the Maltese lira worth Lm1.8 million.

Interbank Market

In the interbank market, one deal in the overnight tenor and four deals in the seven-day tenor were conducted, for a total of Lm4.7 million. The interest rate on the overnight deal was four per cent, up by five basis points from the previous weighted average overnight rate, that on deals conducted on 14 March 2007. By contrast, the weighted average rate on the one-week tenor, at 4.0479 per cent, was down by five basis points from the rate on the previous one week deal, that conducted on 27 April.

Treasury Bill Market

In the primary market for Treasury bills, the Treasury invited tenders for 28-day bills and 182-day bills maturing, respectively, on 15 June and 16 November 2007. In the 28-day tenor, the Treasury accepted bids for Lm20.3 million, out of a total of Lm32.3 million submitted. In the 182-day tenor, it accepted Lm3.9 million out of a total of Lm15.9 million bids submitted. Since Lm18.9 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm5.4 million and now stands at Lm178.6 million.

The latest 28-day rate resulting from the week’s Treasury bill auction was 4.166 per cent, which was 70 basis points higher than the rate on similar bills issued on 20 October 2006, and reflected a bid price of Lm99.677 per Lm100 nominal. When comparing such rates, it should be noted that since the earlier issue the bank had increased its Central Intervention Rate by 25 basis points on two occasions: in October 2006 and again in January 2007. The yield on the 182-day bills was 4.312 per cent, which was 1.9 basis points higher than that on similar bills issued on 5 April 2007 and reflected a bid price of Lm97.8666 per Lm100 nominal.

On Tuesday, the Treasury invited tenders for 91-day bills maturing on 24 August 2007.

Treasury bill trading on the Malta Stock Exchange amounted to Lm1.2 million during the week, while off exchange transactions amounted to Lm0.2

million. Of the Lm1.4 million worth of bills

traded, the bank, in its role as market maker,

purchased Lm1.3 million.