Money Market 1-5 July

- higher activity in the inter-bank market

Malta Government Treasury Bills

In the primary market for Treasury bills, the Government invited tenders for 182-day Treasury bills, which will mature on 3 January 2003. The amount applied for was Lm25.8 million, whereas the Treasury issued Lm14 million, exactly the same amount of maturing Treasury bills. Thus, outstanding Treasury bills remained unchanged at Lm198.9 million.

The weighted average rate resulting from this auction was 4.0995 per cent, down by 0.0403 of one percentage point from the previous 182-day tenor. This rate corresponds to a price of Lm97.9968 per Lm100 nominal.

On Tuesday the Treasury invited tenders for 91-day Treasury bills to mature on 11 October 2002 at a rate not exceeding 3.99 per cent, equivalent to a price of 99.0150 per Lm100 nominal. For the following week, the Treasury will receive applications for 28-day Treasury bills maturing on 16 August 2002.

During the week under review turnover in the secondary market amounted to Lm4.5 million, Lm2.7 million more than the previous week. The Central Bank effected net purchases of Lm19,000 in its role of market maker, whilst deals outside the Bank amounted to Lm4.5 million.

Central Bank Monetary Operations

The week under review was once again characterised by excess short-term liquidity in the banking sector. This was mainly due to maturing term deposits amounting to Lm 25 million, the injection of Lm16.3 million by the Central Bank against purchases of foreign currency from the banks and the cumulative excess in the Reserve Deposit accounts which they are legally bound to hold with the Central Bank. These factors more than offset the effect of fund outflows from the commercial banking sector resulting from purchases of Malta Government Stocks in the secondary market totalling Lm4.1 million and the withdrawal of notes and coins by banks from the Central Bank amounting to Lm4.2 million.

Accordingly, a 14-day term deposit auction was conducted by the Central Bank on Friday, 5 July, where the Bank invited tenders within the rate band of 3.95 per cent - 4.00 per cent in order to absorb the short-term excess liquidity. During the auction Lm31 million were absorbed, Lm6 million more than the amount maturing on that day. As a result outstanding term deposits increased to Lm74.5 million from Lm68.5 million of the previous week. The weighted average rate resulting from this auction remained at 3.95 per cent, being the floor of the interest rate band at which the Central Bank conducts its term deposit auction.

Inter-bank Market

Activity in the inter-bank market picked up during the week under review. Deals transacted during the week amounted to Lm10.4 million. This was due to the fact that excess short-term liquidity was not present across the whole banking sector. This contrasts sharply with the lack of activity during the previous week. All transactions were all in the 10-day tenor at a weighted average rate of 3.9965 per cent.