Central Bank eases monetary policy
The Central Bank of Malta yesterday eased its monetary
policy stance by lowering the central intervention rate by 25 basis
points to 3.5 per cent.
In explaining the decision, taken by the Central Banks Monetary
Policy Advisory Council yesterday, CBM Governor Michael C. Bonello said
he considered there were grounds for believing that lower official interest
rates were compatible with the maintenance of the exchange rate peg
at this time.
The Central Banks external reserves, a key indicator of the sustainability
of the exchange rate peg, had risen further in April and into the first
half of May. At the same time the continued weakness in the international
economic environment had led to a drop in interest rates abroad, to
such an extent that the interest rate differential in favour of the
Maltese lira rose beyond the level that seemed appropriate under the
Within this context, Bonello observed that the end of uncertainty over
Maltas relations with the European Union, and the economic policy
disciplines implied by membership, added to the credibility of the peg.
The persistence of high levels of liquidity in domestic financial markets
also supported yesterdays cut.
The CBM added that inflationary pressures were unlikely to emerge in
the near term and noted the drop in inflation registered during the
first quarter of the year.
However, the Bank also emphasised that sluggish growth in Maltas
main export markets suggests that local economic activity will continue
to expand below its potential rate, despite the expansionary stance
of fiscal policy.
The Bank explains that this consideration also favoured an easing of
the monetary policy stance at this time, though the Council will continue
to monitor the process of fiscal consolidation.
The Monetary Policy Advisory Council is due to meet again on