Money market 19-23 August

- further decline in outstanding treasury bills

Malta Government Treasury Bills

Last week the Treasury invited tenders for 91-day Treasury bills, to mature on 22 November 2002. Applications amounted to approximately Lm56.6 million, while the Treasury issued only Lm20.1 million worth of Treasury bills. Since Lm25.5 million worth of Treasury bills matured on the same day, outstanding bills dropped by Lm5.4 million to Lm182.9 million.

The weighted average rate resulting from this auction was 3.9991 per cent, marginally higher from last week’s 91-day rate of 3.9984 per cent. This rate corresponds to a price of Lm99.0128 per Lm100 nominal. On Tuesday the Treasury invited tenders for 91-day Treasury bills to mature on 29 November 2002.

During the week under review, turnover in the secondary market amounted to Lm112,000. This was entirely conducted with the Central Bank which, in its role of market-maker, effected net purchases amounting to Lm96,000. As in the previous week, there were no deals transacted outside the Central Bank of Malta.

Central Bank Monetary Operations

Excess short-term liquidity continued to characterise the banking sector in the week ending 23 August 2002. This excess liquidity was mainly due to maturing term deposits amounting to Lm29 million, the injection of Maltese lira against purchases of foreign currency by the Central Bank totalling Lm3.2 million, Lm1.9 million notes and coins deposited by banks with the Central Bank as well as direct credits of Lm1.8 million mainly relating to payment of retirement pensions. Moreover, there were net maturing Treasury bills totalling Lm5.3 million in the primary market and a cumulative excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank which continued to accentuate this excess liquidity.

Consequently, on Friday, 23 August 2002, the Central Bank of Malta invited tenders for a 14-day term deposit auction to absorb the excess liquidity in the market. During this auction Lm49.5 million were absorbed, or Lm20.5 million more than the amount which matured over last week. As a result, outstanding term deposits increased from Lm68 million to Lm88.5 million. The latest auction was carried out at the weighted average rate of 3.95 per cent, being the floor of the interest rate band of 3.95 per cent - 4.05 per cent at which the Central Bank conducts its weekly auctions for 14-day money.

Inter-bank Market

During the week under review no inter-bank deals were transacted in the local money market. Once again, this reflects the excess short-term liquidity across the banking sector.