Central intervention rate remains unchanged

The Central Bank has decided to leave the central intervention rate and the discount rate unchanged at 3.75 per cent.

The decision was taken by the governor, Michael C. Bonello, following a meeting of the monetary policy advisory council.

The governor considered that, after the reduction in December, official interest rates remained compatible with the maintenance of the exchange rate peg in the current domestic and international environment.

In December, the Central Bank cut the central intervention rate and discount rate by 25 basis points to 3.75 per cent.

The Central Bank said yesterday the council noted that the global economic outlook had deteriorated recently against a background of deepening geopolitical uncertainty.

Growth forecasts for the leading industrial economies had been revised accordingly and this would inevitably impact on the prospects of the Maltese economy in 2003.

Turning to developments in Malta, the council observed that the Central Bank's external reserves had stabilised in December and into January, indicating the absence of pressures on the exchange rate peg.

The council also noted that the December cut in official interest rates had little immediate impact on domestic financial markets, as money market interest rates had already fallen in anticipation of its decision.

The latest information on the balance of payments showed that the surplus on the current account had increased in the September quarter while financial inflows had continued, though at a slower pace than before.

Export growth slowed down during the first two months of the final quarter, however, in line with the weakening of external demand. While noting the improvement in Malta's external accounts, the council reiterated the importance of sustained fiscal discipline to consolidate the gains in the balance of payments and to support the bank's stability-oriented monetary policy.

The monetary policy advisory council is due to meet again on February 20.