During the week under review, the banking system was once again characterised by excess short-term liquidity, albeit to a lesser extent than the week before. Accordingly, on Friday, the Central Bank of Malta invited tenders for a 14-day term deposit auction to absorb the excess short-term liquidity in the market.
This liquidity was mainly due to maturing term deposits amounting to Lm40 million, the injection of Maltese lira against purchases of foreign currency by the Central Bank amounting to Lm5.5 million, as well as new deposits associated to the payment of salaries and dividends by the government.
However, these inflows were mitigated by the fact that the credit institutions started the week with a shortfall in the amount of funds which they are required to maintain in their reserve deposit account at the Central Bank. This shortfall emanated from an increase in their lending activities.
During the latest Central Bank auction, Lm24.5 million were absorbed, or Lm15.5 million less than the amount which matured during the week reviewed.
The latest absorption was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95 - 4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money. As a result, outstanding term deposits dropped by Lm15.5 million from Lm62.5 million to Lm47 million.
During the week under review, no inter-bank deals were transacted in the inter-bank market. This reflects the excess short-term liquidity across the banking sector.
In the primary market for treasury bills, the government invited tenders for 91-day treasury bills, to mature on November 1. Applications amounted to Lm32.2 million, while the Treasury issued Lm21 million, being the same amount maturing on the same day. Consequently, the outstanding balance remained unchanged at Lm198.9 million.
The weighted average rate resulting from this auction was 4.0081 per cent, marginally higher than last week's 91-day rate of 4.0024 per cent.
Today week the Treasury will invite tenders for 91-day treasury bills to mature on November 8. For the following week, the Treasury will receive applications for 91-day treasury bills maturing on November 15.
During the week under review, turnover in the secondary market amounted to only Lm11,000, with net sales totalling Lm7,000. There were no deals transacted outside the Central Bank of Malta.