ECB Monetary Operations

On Thursday, 15 January, the Governing Council of the European Central Bank (ECB) reduced the minimum bid rate on its main refinancing operations by 50 basis points to 2.00% with effect from 21 January 2009, being the settlement date for the week’s Main Refinancing Operation (MRO). With effect from the same date, the ECB also widened the corridor applicable to the ECB’s standing facilities, from 100 to 200 basis points around the interest rate on the MRO. Hence, as from the yesterday, the rates on the marginal lending facility and the overnight deposit facility now stand at 3% and 1%, respectively.

On Monday 12 January, the ECB announced its weekly MRO. This attracted bids for e203.79 billion from euro area eligible counterparties, at a fixed rate equivalent to the then prevailing main refinancing rate of 2.50%.

On the same day, the Eurosystem and the Swiss National Bank (SNB) conducted a EUR/CHF foreign exchange swap, with a 7-day maturity, to provide Swiss Franc liquidity against euro. This operation received bids for e20.49 billion. Given that the volume of bids exceeded the intended volume of e20 billion, participating counterparties received 97.58% of the amounts bid for. This operation was conducted at a fixed price of -6.08 swap points. These points are based on the interest rate differential between EUR and CHF, which, as announced in a press release on 15 October 2008, are calculated by using the rate applied in the ECB’s MROs and the SNB’s one week repo rate plus a spread of 25 basis points.

On Friday, 16 January, the ECB and the SNB jointly announced that they would continue to conduct 7-day EUR/CHF foreign exchange swap operations until the end of April 2009 to support further improvements in the short-term Swiss franc money markets. On the other hand it was decided not to execute further 84-day EUR/CHF swap operations because demand for such operations was relatively low.

On Tuesday, 13 January, the ECB, in conjunction with the US Federal Reserve, conducted a 28-day US dollar funding operation through collateralised lending. This attracted bids for $21.31 billion, at a fixed rate of 1.17%. In parallel with this operation, the Eurosystem also offered 28-day dollar liquidity through a EUR/USD foreign exchange swap operation. This attracted bids for $0.13 billion at a fixed price of -3.00 swap points which were based on a US dollar interest rate of 1.17% and on a EUR interest rate of 1.49%.

On Wednesday 14 January, the ECB, in conjunction with the US Federal Reserve, conducted a 7-day US dollar funding operation through collateralised lending. This attracted bids for $58.02 billion, at a fixed rate of 1.13%. In parallel with this operation, the Eurosystem also offered 7-day dollar liquidity through a EUR/USD foreign exchange swap operation. This attracted bids for $0.78 billion at a fixed price of -1.55 swap points.

These were based on a US dollar interest rate of 1.76% and on a EUR interest rate of 1.13%.

The amounts bid for in both the euro and the US dollar operations were allotted in full, in accordance with the ECB’s press releases of 15 October and 18 December 2008.

Domestic Treasury

Bill Market

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 17 April 2009. Bids for e31.12 million were submitted, with the Treasury accepting e20.12 million. Since e10.66 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by e9.46 million to e395.84 million.

The yield resulting from the auction was 2.63%, that is 2.9 basis points lower than that on bills with a similar tenor issued on 9 January 2009. The latest yield represented a bid price of 99.3396 per 100 nominal.

On Tuesday, the Treasury invited tenders for 91-day bills maturing on 24 April 2009.

Treasury bill trading on the Malta Stock Exchange amounted to e3.62 million during the week, with all trades being conducted by the Central Bank of Malta in its role as market maker. Off-exchange turnover, which was entirely conducted by other brokers, amounted to e305,000.