Central Bank of Malta conducts injection auction

The banking sector experienced a shortage of short-term liquidity for the second consecutive week. Credit institutions started the week with a shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta.

Other factors contributing to the decrease in liquidity were a negative net clearing of cheques amounting to Lm7 million and an increase in currency in circulation of Lm2.6 million. Partially offsetting the decrease in liquidity were net maturing Treasury bills amounting to Lm9.7 million, the net sale of foreign currency against the Maltese lira by the credit institutions to the Central Bank amounting to Lm8.4 million and direct credits amounting to Lm1.4 million.

Accordingly, on Friday, the Bank invited credit institutions to tender for a 14-day reverse repo auction whereby the Bank would be prepared to inject funds into the banking system at a rate between a band of 3.25-3.30 per cent. The amount injected through this reverse repo amounted to Lm7.3 million at a weighted average rate of 3.2673 per cent. Since there was a net claim of Lm9 million from the previous week's reverse repo auction, the Bank's outstanding claims on the banks in respect of monetary operations increased to a total of Lm16.3 million.

Interbank activity decreased slightly from the previous week's level of Lm2 million to Lm1 million. In the week under review, one deal was transacted in the one-week tenor at a rate of 3.23 per cent.This was 25.4 basis points higher than the previous seven-day weighted average rate dealt on April 8, 2005.

In the primary market, the Treasury invited tenders for 91-day Treasury bills to mature on August 5. The amounts of bids submitted, totalling Lm4.1 million, were all accepted by the Treasury. Given that Lm14.1 million worth of bills matured during the week under review, the outstanding balance of Treasury bills decreased by Lm10 million, from Lm242.9 million to Lm232.9 million.

The latest three-month rate resulting from this auction was 3.2522 per cent. This was 1.6 basis points higher than the previous 91-day rate for bills issued in the previous week. The latest rate reflects a bid price of Lm99.1957 per Lm100 nominal.

Today, the Treasury will receive applications for 364-day bills to mature on May 12, 2006. Next week, the Treasury will invite tenders for 91-day Treasury bills to mature on August 19, 2005.

Turnover in the secondary market for Treasury bills decreased from the previous week's level of Lm2.4 million to only Lm0.05 million.

All trading was effected by the Central Bank of Malta in its role of market maker.