Lower short-term liquidity on money market

Central Bank monetary operations
On Monday 29 December 2003, the Governor of the Central Bank of Malta, following the meeting with the Monetary Policy Advisory Council, decided to leave the Bank’s central intervention rate unchanged at three per cent.
In the week under review, short-term liquidity in the banking system decreased. This decline was mainly attributable to an increase in Treasury bill holdings of commercial banks and other institutional investors, totalling Lm6.9 million. Moreover, there were net payments by banks of Lm3.4 million effected through the cheque clearing system. Currency in circulation, which had expanded considerably during the Christmas period, decreased by Lm1.5 million in the week under review, thus partly mitigating this decline in liquidity.
Despite the decrease in liquidity, on Wednesday 31 December 2003, the banking system still had a substantial amount of excess funds, arising mainly from the maturity of Lm49 million worth of term deposits. Accordingly, the Central Bank of Malta conducted a term deposit auction to absorb this surplus liquidity. In this auction, credit institutions deposited Lm36.8 million, Lm12.2 million less than the amount that matured. Consequently, the volume of term deposits held with the Central Bank decreased to Lm104.3 million. The weighted average rate on these deposits remained unchanged at 2.95 per cent, which is the floor of the interest rate band used in the Central Bank’s term deposit auctions.
Inter-bank market
Inter-bank market activity picked up during the week under review, with turnover increasing to Lm4.9 million. This consisted of two deals. One deal was conducted for a 1-week tenor at 2.96 per cent, unchanged from the previous week. Another deal was struck for a 14-day tenor also at a rate of 2.96 per cent. As a result, the 14-day rate decreased marginally from the 2.966 per cent of a fortnight ago.
Malta Government Treasury Bills
During the week under review, the Government offered a tender for 93-day Treasury bills. A total of Lm31.3 million bids were submitted, of which, Lm19 million were accepted. This contrasted with the pattern of the previous two weeks when the Government had opted not to accept any of the bids submitted by market participants. Given that Lm22 million Treasury bills matured during the week, the volume of outstanding Treasury bills decreased to Lm210.3 million.
The 93-day primary rate edged slightly lower to 2.9443 per cent from the previous 91-day rate of 2.9451 per cent, dated 12 December 2003. The latest rate represents a bid price of Lm99.2554 per Lm100 nominal.
On Tuesday the Treasury received applications for 182-day Treasury bills to mature on 9 July 2004. Next week the Treasury will receive applications for 273-day Treasury bills to mature on 15 October 2004.
Trading in the secondary market was very thin, totalling Lm242,000. All trades were conducted with the Central Bank in its role as a market maker.