02 August 2006

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Business Today

Central intervention rate unchanged at 3.5%

The Central Bank of Malta on Friday left the central intervention rate unchanged at 3.5%.
The Governor noted that earlier indications on the first reactions to the increase in the central intervention rate in May had been confirmed as the enhanced attractiveness of domestic financial assets was reflected in the growth of bank deposits and in the favourable response to the latest issue of government bonds on the primary market. The Bank’s net foreign assets were broadly stable in July, while interest rate differentials in favour of the Maltese lira widened, reflecting movements in domestic and euro area interest rates. However, in a context of tightening monetary conditions abroad, the Council said it will continue to monitor the domestic financial market dynamics closely.
Looking ahead, the Bank’s policy stance will also factor in developments in the current account of the balance of payments given its impact on the Bank’s external reserves.
In this regard, the Governor noted that while recent data pointed to an improved performance of manufacturing exports, the contribution from tourism continued to fall short of expectations.
He stressed the importance of containing second-round effects of rising energy prices on inflation. In this same context, the ongoing rapid rise in credit growth to the construction and related economic sectors also had to be carefully monitored because of its potential to generate domestic cost and price pressures. The Monetary Policy Advisory Council is due to meet again on 31 August 2006.

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