Central Bank Monetary Operations
On Friday, the Central Bank of Malta conducted a six-day term deposit auction (as tomorrow is a public holiday), absorbing Lm94 million from the banking system. This was Lm16 million less than the Lm110 million that matured on the same day. The interest rate that resulted from the auction was 4.2 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. The factors contributing to this were a Lm21.5 million negative net clearing of cheques related to the new Malta government stock (MGS) issue and to VAT/income tax payments, purchases of foreign currency worth Lm1.8 million by the local banks and the fact that the latter had started the week with a shortfall in their statutory reserve deposit accounts with the bank.
Partly offsetting these factors were sales of MGS in the secondary market worth Lm7.8 million, direct credits (mainly related to retirement pensions) totalling Lm5.2 million and net maturing Treasury bills held by the banking sector amounting to Lm3.4 million.
Interbank Market
In the interbank market three deals were conducted in the one-week tenor, for a total of Lm7.6 million. The weighted average interest rate was 4.25 per cent, down by one basis point when compared to the weighted average rate on similar deals conducted on 15 June.
Treasury Bill Market
In the primary market for Treasury bills, the Treasury invited tenders for 272-day bills maturing on 20 March 2008. Out of the Lm13.6 million worth of bids submitted, Lm9.6 million were accepted. Since Lm14.2 worth of bills matured during the week, the outstanding balance of Treasury bills decreased by Lm4.6 million to Lm196.5 million.
The latest nine-month yield resulting from the week’s Treasury bill auction was 4.574%. This was 25.2 basis points higher than the rate on similar bills issued on 13 April and represented a bid price of Lm96.6595 per Lm100 nominal. The rate increase reflected the 25 basis points increase in the Central Bank’s Central Intervention Rate announced on 29 May 2007.
On Tuesday, the Treasury invited tenders for 29-day bills maturing on 27 July.
Treasury bill trading on the Malta Stock Exchange amounted to Lm1.4 million, while Off-Exchange transactions amounted to Lm0.4 million. The bank’s involvement in Treasury bill trading amounted in total to Lm1.1 million during the week reviewed.