NEWS | Wednesday, 25 July 2007

Decrease in bank liquidity

Money Market Report for the week ended Friday 20 July 2007

Central Bank Monetary Operations
On Friday, 20 July 2007, the Central Bank of Malta conducted a seven-day term deposit auction, absorbing Lm92 million from the banking system. This was Lm34.1 million less than the Lm126.1 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 injection of funds was in response to a decrease in liquidity in the banking system during the week under review as credit institutions started off the maintenance period with a shortfall in the statutory reserve deposit requirement. A net negative clearing of cheques of Lm5.8 million mainly related to tax payments also contributed to the decrease in the liquidity of the banking system during the week reviewed. Partly offsetting these liquidity-absorbing factors were Government direct credits of Lm7.4 million mainly relating to pensions, the sale of Treasury bills in the secondary market worth Lm2 million and a Lm1 million decrease in currency in circulation.

Interbank Market
In the interbank market, one deal in the overnight tenor and two deals in the 7-day tenor were conducted, for a total of Lm7.8 million. The interest rate on the overnight deal was 4.2%, unchanged from the previous deal in the same tenor conducted on 13 July. The weighted average interest rate on the one-week tenor was 4.25%, also unchanged from the interest rate transacted on similar deals.

Treasury bill Market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 19 October 2007. Out of the Lm26 million worth of bids submitted, Lm16.8 million were accepted by the Treasury. As Lm18.8 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by Lm2 million to Lm196.1 million.
The latest 91-day rate resulting from the week’s Treasury bill auction was 4.474%. This was 4 basis points higher than the rate on similar bills issued on 13 July 2007 and reflected a bid price of 98.8817 per 100 nominal.
On Tuesday, the Treasury invited tenders for 91-day bills maturing on 26 October 2007.
In the secondary market, Treasury bill trading amounted to Lm2.1 million. This was executed almost entirely on an off-Exchange basis and was conducted by the Bank in its role as market maker.