Central intervention rate kept at three per cent

The Central Bank of Malta yesterday left the central intervention rate unchanged at three per cent.

The decision was taken by Governor Michael Bonello at the end of the Monetary Policy Advisory Council meeting.

Mr Bonello said that the central intervention rate remained appropriate at its current level in the absence of pressures on the exchange rate peg.

The underlying level of the bank's external reserves was stable, while the premium on the lira widened marginally as long-term yields abroad eased and domestic interest rates remained largely unchanged, he said.

The governor also noted that although the economy was expected to expand modestly during 2004, the recovery remained fragile.

The sharp rise in oil prices on international markets was likely to dent external demand and would put pressure on domestic prices through higher energy costs. Mr Bonello stressed that that these costs had to be absorbed by the country as a whole, without unduly burdening the productive sectors.

To further safeguard competitiveness, moreover, it was important not to allow the higher energy costs to generate secondary price effects, particularly at a time when inflation was already relatively high.

Mr Bonello also appealed for wage moderation and the containment of administrative and other charges.

In this light, the process of fiscal consolidation, which was a pre-requisite to achieve macro-economic stability, should primarily be pursued through measures aimed at reducing the government expenditure, he said.

The Monetary Policy Advisory Council is due to meet again on November 29.