Lower short-term liquidity on
Central Bank monetary operations
On Monday 29 December 2003, the Governor of the Central Bank of Malta,
following the meeting with the Monetary Policy Advisory Council, decided
to leave the Banks central intervention rate unchanged at three
In the week under review, short-term liquidity in the banking system
decreased. This decline was mainly attributable to an increase in Treasury
bill holdings of commercial banks and other institutional investors,
totalling Lm6.9 million. Moreover, there were net payments by banks
of Lm3.4 million effected through the cheque clearing system. Currency
in circulation, which had expanded considerably during the Christmas
period, decreased by Lm1.5 million in the week under review, thus partly
mitigating this decline in liquidity.
Despite the decrease in liquidity, on Wednesday 31 December 2003, the
banking system still had a substantial amount of excess funds, arising
mainly from the maturity of Lm49 million worth of term deposits. Accordingly,
the Central Bank of Malta conducted a term deposit auction to absorb
this surplus liquidity. In this auction, credit institutions deposited
Lm36.8 million, Lm12.2 million less than the amount that matured. Consequently,
the volume of term deposits held with the Central Bank decreased to
Lm104.3 million. The weighted average rate on these deposits remained
unchanged at 2.95 per cent, which is the floor of the interest rate
band used in the Central Banks term deposit auctions.
Inter-bank market activity picked up during the week under review, with
turnover increasing to Lm4.9 million. This consisted of two deals. One
deal was conducted for a 1-week tenor at 2.96 per cent, unchanged from
the previous week. Another deal was struck for a 14-day tenor also at
a rate of 2.96 per cent. As a result, the 14-day rate decreased marginally
from the 2.966 per cent of a fortnight ago.
Malta Government Treasury Bills
During the week under review, the Government offered a tender for 93-day
Treasury bills. A total of Lm31.3 million bids were submitted, of which,
Lm19 million were accepted. This contrasted with the pattern of the
previous two weeks when the Government had opted not to accept any of
the bids submitted by market participants. Given that Lm22 million Treasury
bills matured during the week, the volume of outstanding Treasury bills
decreased to Lm210.3 million.
The 93-day primary rate edged slightly lower to 2.9443 per cent from
the previous 91-day rate of 2.9451 per cent, dated 12 December 2003.
The latest rate represents a bid price of Lm99.2554 per Lm100 nominal.
On Tuesday the Treasury received applications for 182-day Treasury bills
to mature on 9 July 2004. Next week the Treasury will receive applications
for 273-day Treasury bills to mature on 15 October 2004.
Trading in the secondary market was very thin, totalling Lm242,000.
All trades were conducted with the Central Bank in its role as a market