During the week under review, excess short-term liquidity in the banking sector persisted, albeit at a lower level than the previous week. This was mainly due to the fact that credit institutions started the week with a shortfall in their reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. Furthermore, banks increased their holdings of treasury bills by Lm8.8 million while net payments by banks in respect of cheque clearing totalled Lm6.5 million. This was partially offset by around Lm13 million in direct credits mainly in respect of government salaries.
Accordingly, a 14-day term deposit auction was conducted by the Central Bank on Friday. The Central Bank invited tenders within the rate band of 3.7-3.75 per cent. During this auction, Lm47 million were absorbed, Lm7.3 million less than the amount maturing on the same day. As a result, outstanding term deposits held at the Central Bank decreased from Lm136.3 million of the previous week to Lm129 million. The weighted average rate resulting from this auction remained at 3.7 per cent, being the floor of the interest rate band at which the bank conducts its term deposit auction.
Two interbank deals were transacted in the week under review totalling Lm8 million. One deal was conducted in the overnight tenor at a rate of 3.55 per cent, being the same rate as the previous one transacted on April 14. The other deal was transacted in the 14-day tenor at 3.7 per cent, being eight basis points lower than the previous rate transacted on January 3, 2003.
In the primary market, the Treasury received tenders for 91-day treasury bills to mature on July 25. Demand for treasury bills once again exceeded considerably the amount issued. In fact, total bids amounted to Lm45.2 million, while the Treasury issued Lm27 million worth of bills. Since Lm17 million matured on the same day, the level of outstanding treasury bills increased by Lm10 million to Lm263.7 million.
The weighted average rate resulting from this auction was 3.4552 per cent, that is 4.46 basis points lower than previous rate of 3.4998 per cent.
The new rate reflects a bid price of Lm99.1459 per Lm100 nominal.
Today, the Treasury will invite tenders for 91-day bills to mature on August 1. For the following week it will again receive tenders for 91-day treasury bills to mature on August 8.
During the week under review, turnover in the secondary market amounted to Lm10,340,000, of which Lm10,216,000 were transacted outside the Bank between institutional players. The Central Bank effected net purchases of Lm 124,000 in its role as market maker, mainly with retail clients.