NEWS | Wednesday, 01 August 2007

Central Bank of Malta leaves the central intervention rate unchanged

The Central Bank of Malta today left the central intervention rate unchanged at 4.25%. The decision was taken by the Governor at the end of the Monetary Policy Advisory Council meeting held last week.
The Governor concluded that there were no developments since the previous meeting that necessitated a change in the monetary policy stance. The slowdown in the underlying downward trend in the Bank’s external reserves observed in June continued into July, when a relatively small fall was recorded. Seasonal inflows, reflected in lower net sales of foreign exchange by the Bank to the banking system, contributed positively, while other factors, including the continued conversion of Maltese lira holdings into euro, had a negative impact on the external reserves. Meanwhile, interest rate differentials in favour of the Maltese lira widened, leading to more balanced trading in the secondary market for government bonds. In addition, bank deposits continued to grow robustly in June. The Governor pointed out, moreover, that the recent ECOFIN decision allowing Malta to adopt the euro on 1 January 2008 and confirming the central parity rate as the permanent conversion rate of the Maltese lira had strengthened support for the exchange rate peg. This notwithstanding, the Bank will continue to monitor closely developments in the financial markets.
The monetary policy decision was taken against a backdrop of generally benign economic conditions. In particular, the Council noted that the trade gap had narrowed during the first five months of the year, inflation fell again in June, activity in the tourism industry continued to improve and labour market conditions were stable.
The Monetary Policy Advisory Council is due to meet again on 27 August 2007.