Interest rates unchanged

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

The decision was taken by the governor, Michael Bonello, at the end of the monthly monetary policy advisory council meeting.

Mr Bonello considered that official interest rate levels continued to provide sufficient support to the exchange rate peg. "The premium on the Maltese lira had widened slightly in December, reflecting lower yields abroad and stable domestic interest rates.

"The observed decline in the bank's external reserves during the month reflected a number of special factors, including a seasonally higher demand for imports of consumer goods, the continued effect of high oil prices and the ongoing adjustment in consumption patterns following trade liberalisation," Mr Bonello said.

In the governor's view, such factors did not warrant a change in interest rates.

He said that the current stance of monetary policy was also compatible with the subdued level of economic activity, as evidenced by the latest labour market and export data.

The governor noted that monetary expansion was moderate and credit growth was largely driven by lending to the personal sector, including housing finance, which could be associated with rising property prices.

In these circumstances, the persistence of relatively high, locally-generated inflation highlighted the need for moderation in consumer credit and also for restraint in the setting of prices and wages, he said.

The council meets again on January 27.