The Governor of the Central Bank of Malta, after deliberating with the Monetary Policy Advisory Council of the Bank, has lowered the central intervention rate by 25 basis points from 3.5 per cent to 3.25 per cent. Thus, the absorption rate band which the Central Bank applies in its weekly auctions of 14-day funds, was reviewed from 3.45-3.5 per cent to 3.2-3.25 per cent, while the injection rate band was reviewed from 3.5-3.55 per cent to 3.25-3.3 per cent.
Excess liquidity continued to characterise the banking sector during the week under review, albeit at a lower level than the previous week. This decrease was mainly due to the fact that credit institutions started the week with a cumulative shortfall in the reserve deposit accounts which they are legally bound to hold with the Central Bank.
Furthermore, there was a net issue of treasury bills totalling Lm8 million, the purchase of Lm3.9 million worth of foreign currency by the Central Bank from credit institutions, together with an increase of currency in circulation of Lm2.4 million. The effect of these liquidity-reducing factors was partially mitigated by Lm15.8 million in direct credits mainly relating to salaries.
Consequently, a 14-day term deposit auction was conducted by the Central Bank on Friday, within the new rate band of 3.2-3.25 per cent. During this auction, Lm71.5 million were absorbed, Lm3.3 million less than the amount maturing on the same day. As a result, outstanding term deposits held at the Bank decreased from Lm148.8 million of the previous week, to Lm145.5 million. This auction was carried out at a weighted average rate of 3.2 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.
Two deals were transacted in the interbank market to the tune of Lm1.5 million. Both deals were conducted in the two-week tenor at a weighted average rate of 3.2367 per cent. This rate is 25.33 basis points lower than the previous 14-day rate of 3.49 per cent transacted on June 20. This decline reflects the 25 basis point cut in the central intervention rate effected by the Central Bank of Malta on June 24.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on September 26 and 273-day bills which will mature on March 26, 2004. Once again, the demand for bills well exceeded total bills issued. In fact, for the 91-day bills, total bids amounted to Lm17.9 million, while the Treasury issued Lm3 million worth of bills. For 273-bills, total bids totalled Lm38.5 million, with the Treasury issuing Lm26 million.
As a result, outstanding treasury bills increased to Lm272.1 million from the previous Lm264.1 million. The weighted average rate resulting from the 91-day Treasury bill auction dropped marginally to 3.3770 per cent from 3.3990 per cent (June 2). The new rate reflects a bid price of Lm99.1651 per Lm100 nominal. For the 273-day treasury bills, the weighted average rate dropped sharply from 3.4670 per cent (274-day bills were last issued on April 17) to 3.3096 per cent, that is by 15.74 basis points.
This reflects a bid price of 97.5844 per cent. It should be pointed out that this auction was conducted prior to the 25 basis points cut in the central intervention rate.
Today, the Treasury will receive applications for 91-day treasury bills to mature on October 3. For the following week, the Treasury will again invite tenders for 91-day treasury bills to mature on October 10.
Turnover in the secondary market in the week under review amounted to just Lm104,000. These deals were transacted by the Central Bank in its role of market maker.