Money market report 2 - 6 September
- higher activity in the inter-bank market

Malta Government Treasury Bills

Last week the Treasury invited tenders for 91-day Treasury bills, to mature on 6 December 2002. Applications amounted to approximately Lm30.5 million, while the Treasury issued only Lm11 million worth of Treasury bills. Since Lm12 million worth of Treasury bills matured on the same day, outstanding bills dropped by Lm1 million to Lm179.9 million.

The weighted average rate resulting from this auction was 3.9991 per cent, which was the same as last week‚s 91-day rate. This rate corresponds to a price of Lm99.0128 per Lm100 nominal.

On Tuesday the Treasury invited tenders for 90-day Treasury bills to mature on 12 December 2002. For the following week, the Treasury will receive applications for 91-day bills to mature on 20 December 2002.

During the week under review, turnover in the secondary market amounted to Lm1.4 million, higher than last week‚s volume of Lm0.5 million. The Central Bank effected net purchases of Lm95,000 in its role as a market maker whilst deals outside the Central Bank totalled Lm 1.3 million.Central Bank monetary operations

The banking sector was once again characterised by excess short term liquidity during the week ending 6 September 2002, albeit lower than the previous week’s level. This week‚s surplus was mainly due to maturing term deposits amounting to Lm49.5 million and a significant cumulative excess in the reserve deposit accounts which they are legally bound to hold with the Central Bank of Malta. This liquidity was partially mitigated by the fact that there was a net absorption of Maltese lira as a result of sales of foreign currency by the Central Bank to the banks totalling Lm18.4 million and the withdrawal of Lm3.7 million notes and coins by banks from the Central Bank. Moreover there was a reduction of Lm3.4 million in the banks‚ balances at the Central Bank following the clearing of cheques issued by the public in favour of government departments, mainly related to tax payments.

Consequently, on Friday, 6 September 2002, the Central Bank invited tenders for a 14-day term deposit auction to absorb the excess liquidity in the market. During this auction Lm43.4 million were absorbed, Lm6.1 million less than the amount which matured during the same week. As a result, outstanding term deposits dropped from Lm102 million to Lm95.9 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, turnover in the inter-bank market amounted to Lm7.6 million. This was due to the fact that excess liquidity was not present across the whole sector. Three deals were transacted in the 10-day tenor at a weighted average rate of 3.9942 per cent. This was marginally lower than the previous 10-day rate.