MSE | Wednesday, 22 August 2007

Increase in bank liquidity

Money Market Report for the week ended Friday 17 August 2007

Central Bank Monetary Operations
On Friday, 17 August 2007, the Central Bank of Malta conducted a seven-day term deposit auction absorbing Lm107.8 million from the banking system. This was Lm20.8 million more than the Lm87 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 amounting to Lm5.7 million, net maturing Treasury bills affecting the banking system of Lm4 million and the fact that credit institutions started the week with excess funds in their statutory reserve deposit accounts with the Bank. Partly offsetting these liquidity-creating factors were net negative cheque clearing of Lm7.6 million, purchases of foreign currency by credit institutions of Lm3 million and a Lm0.5 million increase in currency in circulation.

Interbank Market
No interbank deals were reported during the week

Treasury Bill Market
In the primary market for Treasury bills, the Treasury invited tenders for 91-day bills maturing on 16 November 2007. Of the Lm20.8 million worth of bids submitted, only Lm0.4 million were accepted. As Lm4.3 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by Lm3.9 million to Lm182.6 million.
The latest 91-day yield resulting from the week’s Treasury bill auction was 4.381%, down by 6 basis points from the 4.441% registered on similar bills auctioned on 3 August 2007. This represented a bid price of 98.9047 per 100 nominal.
On Tuesday the Treasury invited tenders for 91-day bills and 182-day bills maturing respectively on 23 November 2007 and 22 February 2008. The following week the Treasury will invite tenders for 91-day bills and 273-day bills maturing respectively on 30 November 2007 and 30 May 2008.
Treasury bill trading on the Malta Stock Exchange amounted to only Lm 5,000, while Off-Exchange transactions amounted to Lm45,000. All transactions were conducted by the Bank in its role as market maker.