ECB reduces Minimum Bid Rate

On Thursday, January 15, the Governing Council of the European Central Bank reduced the minimum bid rate on its main refinancing operations by 50 basis points to two per cent with effect from January 21, being the settlement date for this week's Main Refinancing Operation. With effect from the same date, the ECB also widened the corridor applicable to the ECB's standing facilities, from 100 to 200 basis points around the interest rate on the MRO. Hence, as from the January 21, the rates on the marginal lending facility and the overnight deposit facility will stand at three per cent and one per cent, respectively.

On Monday, January 12, the ECB announced its weekly MRO. This attracted bids for €203.79 billion from euro area eligible counterparties, at a fixed rate equivalent to the then prevailing main refinancing rate of 2.50 per cent.

On the same day, the Eurosystem and the Swiss National Bank (SNB) conducted a EUR/CHF foreign exchange swap, with a seven-day maturity, to provide Swiss Franc liquidity against euro. This operation received bids for €20.49 billion. Given that the volume of bids exceeded the intended volume of €20 billion, participating counterparties received 97.58 per cent of the amounts bid for. This operation was conducted at a fixed price of -6.08 swap points. These points are based on the interest rate differential between EUR and CHF, which, as announced in a press release on October 15 last year, are calculated by using the rate applied in the ECB's MROs and the SNB's one week repo rate plus a spread of 25 basis points.

On Friday, the ECB and the SNB jointly announced that they would continue to conduct seven-day EUR/CHF foreign exchange swap operations until the end of April to support further improvements in the short-term Swiss franc money markets. On the other hand it was decided not to execute further 84-day EUR/CHF swap operations because demand for such operations was relatively low.

On Tuesday, January 13, the ECB, in conjunction with the US Federal Reserve, conducted a 28-day US dollar funding operation through collateralised lending. This attracted bids for $21.31 billion, at a fixed rate of 1.17 per cent. In parallel with this operation, the Eurosystem also offered 28-day dollar liquidity through a EUR/USD foreign exchange swap operation. This attracted bids for $0.13 billion at a fixed price of minus three swap points which were based on a US dollar interest rate of 1.17 per cent and on a EUR interest rate of 1.49 per cent.

The following day, the ECB, in conjunction with the US Federal Reserve, conducted a seven-day US dollar funding operation through collateralised lending. This attracted bids for $58.02 billion, at a fixed rate of 1.13 per cent. In parallel with this operation, the Eurosystem also offered seven-day dollar liquidity through a EUR/USD foreign exchange swap operation. This attracted bids for $0.78 billion at a fixed price of -1.55 swap points.

These were based on a US dollar interest rate of 1.76 per cent and on a EUR interest rate of 1.13 per cent.

The amounts bid for in both the euro and the US dollar operations were allotted in full, in accordance with the ECB's press releases of October 15 and December 18 last year.

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on April 17. Bids for €31.12 million were submitted, with the Treasury accepting €20.12 million. Since €10.66 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by €9.46 million to €395.84 million.

The yield resulting from the auction was 2.63 per cent, that is 2.9 basis points lower than that on bills with a similar tenor issued on January 9. The latest yield represented a bid price of 99.3396 per 100 nominal.

Today the Treasury will invite tenders for 91-day bills maturing on April 24.

Treasury bill trading on the Malta Stock Exchange amounted to €3.62 million during the week, with all trades being conducted by the Central Bank of Malta in its role as market maker. Off-exchange turnover, which was entirely conducted by other brokers, amounted to €305,000.