Central Bank leaves interest rate unchanged

The Central Bank of Malta yesterday decided to leave the central intervention rate and the discount rate unchanged at four per cent although a cut in the future was not ruled out.

The decision to leave the interest rate as it is was taken by Governor Michael Bonello, in terms of Article 17A of the Central Bank of Malta Act, following the first meeting of the newly constituted Monetary Policy Advisory Council held yesterday morning.

The Governor observed, however, that given the high degree of uncertainty worldwide, conditions could develop in which lower domestic interest rates would be appropriate.

The analysis of economic and financial data undertaken by the Council showed that the underlying trend in the official external reserves remained positive into September. Although the current account deficit had widened during the first half of the year, the capital account surplus grew significantly, the Central Bank said in a statement.

There were, therefore, no pressures on the exchange rate peg nor were any pressures expected, given existing information.

Turning to domestic economic conditions, the bank said excess liquidity in financial markets was putting downward pressure on interest rates. Broad money continued to expand, reflecting growth in the net foreign assets of the banking system.

Credit growth remained weak, however, and there were no signs of a sustained resumption in private credit expansion.

The downward trend in inflation continued in August, pointing to an easing of price pressures. Despite a pick-up in the second quarter, domestic economic activity was unlikely to accelerate significantly in the remaining part of the year as external demand was not expected to recover as fast as predicted until recently.

Moreover, the council remained concerned about the deficit on the current account of the balance of payments and the fiscal imbalance.

The Monetary Policy Advisory Council is due to meet again on November 1.