MSE | Wednesday, 18 July 2007

Bank liquidity increases further

Money Market Report for the week ended Friday 13 July 2007

Central Bank Monetary Operations
On Friday, 13 July 2007, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing Lm126.1 million from the banking system. This was Lm47.8 million more than the Lm78.3 million that matured on the same day. The interest rate that resulted from the auction was 4.20%, which is the floor of the interest rate band at which the Bank is currently conducting its term deposit auctions.
The net absorption of funds was in response to an increase in liquidity in the banking system during the week under review. The factors contributing to this were direct credits of Lm15.6 million, mainly related to salaries and social security payments, a contraction in currency in circulation of Lm5.2 million, net sales of Malta Government Stocks to the Bank amounting to Lm1.5 million and the fact that credit institutions started the week with a surplus in their statutory reserve deposit accounts with the Bank. Partly offsetting these liquidity inducing factors were a Lm2.5 million net issue of Treasury Bills affecting financial institutions and a negative net clearing of cheques of Lm1.6 million.

Interbank Market
In the interbank market three deals, for a total of Lm4.3 million, were conducted in the overnight tenor. The weighted average interest rate at which the deals were struck was 4.07%, 18 basis points lower than the rate on the previous deal in the same tenor, that conducted on 6 July 2007.

Treasury bill Market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 12 October 2007 and 364 day bills maturing 11 July 2008. Out of the Lm30.1 million worth of bids submitted for the first issue, Lm26.1 million were accepted by the Treasury while out of the Lm16 million bids submitted for the second issue, only Lm0.9 million were accepted. As Lm23.4 million worth of bills matured during the week, the outstanding balance of Treasury bills increased by Lm3.6 million to Lm198.1 million.
The latest 91-day rate resulting from the week’s Treasury bill auction was 4.434%. This was 7.5 basis points higher than the rate on similar bills issued on 15 June 2007 and reflected a bid price of 98.8916 per 100 nominal. The latest 364-day rate was 4.525%, 26.3 basis points higher than the rate on similar bills issued on the 11 May 2007. This reflected a bid price of 95.6249 per 100 nominal.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 19 October 2007. The following week the Treasury will invite tenders for 91-day bills maturing on 26 October 2007.
All Treasury bill trading on the Malta Stock Exchange was conducted by the Bank in its role as market maker, and amounted to Lm87, 000.