Central Bank Monetary Operations
On Friday, 15 June, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm110 million from the banking system. This was Lm19.8 million more than the Lm90.2 million that matured on the same day. The interest rate that resulted from the auction was 4.20 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 under review. The factors contributing to this were maturing Malta Government Stocks (MGSs) affecting the banking sector worth Lm34 million, direct credits (mainly related to salaries and interest payments) amounting to Lm16.4 million, sales of MGSs in the secondary market worth Lm7.6 million, a positive net clearing of cheques of Lm6.3 million and a Lm4.6 million contraction in currency in circulation. Partly offsetting these factors was the fact that credit institutions had started the week with a shortfall in their statutory reserve deposit accounts with the bank, a Lm9.7 million net issue of Treasury bills affecting the banking system and purchases of foreign currency by credit institutions worth Lm2.6 million.
Interbank Market
Three interbank deals were conducted during the week in the one week tenor, amounting to Lm4.6 million in total. The weighted average rate on these deals was 4.26 per cent, up by 23 basis points from the 4.03 per cent registered on similar deals conducted on 28 May – ie prior to the latest increase in the Central Intervention Rate.
Treasury Bill Market
In the primary market for Treasury bills, the Treasury invited tenders for 28-day bills maturing on 13 July 2007 and 91-day bills maturing on 14 September 2007. Of the Lm27.4 million worth of bids submitted for the 28-day tenor, Lm23.3 million was accepted, while of the Lm14.8 million worth of bids submitted for the 91-day tenor, Lm6.8 million was accepted. Thus, with Lm20.8 million worth of bills maturing during the week, the outstanding balance of Treasury bills increased by Lm9.3 million to Lm201.1 million.
The latest 28-day yield resulting from the week’s Treasury bill auction was 4.293 per cent, up by 12.7 basis points from the 4.166 per cent registered on similar bills auctioned on 18 May 2007. This represented a bid price of Lm99.6672 per Lm100 nominal. The 91-day yield resulting from the week’s Treasury bill auction was 4.359 per cent, 3.2 basis points higher than the rate on similar bills auctioned on 8 June 2007, and representing a bid price of Lm98.9102 per Lm100 nominal.
On Tuesday, the Treasury invited tenders for 272-day bills maturing on 20 March 2008. Next week the Treasury will invite tenders for 29-day bills maturing on 27 July 2007.
Treasury bill trading on the Malta Stock Exchange amounted to Lm560,000, while Off-Exchange transactions amounted to Lm157,000. All the transactions were conducted by the bank in its role as market maker.