Money market report

ECB decisions

On Thursday, December 8, the Governing Council of the European Central Bank (ECB) reduced the rate on its Main Refinancing Operations (MRO) by 25 basis points to 1.00% with effect from Wednesday, December 14, 2011. Also, with effect from the same date, the ECB reduced the rate on the marginal lending facility and on the overnight deposit facility by 25 basis points to 1.75% and 0.25%, respectively.

On the same day, the Governing Council of the ECB decided on additional enhanced credit support measures to support bank lending and liquidity in the euro area money market. In particular, the Governing Council has decided to conduct two longer-term refinancing operations with a maturity of 36 months and the option of early repayment after one year. These operations will be conducted as fixed rate tender procedures with full allotment. The rate in these operations will be fixed at the average rate of the MROs over the life of the respective operation.

In addition, the Governing Council decided to discontinue for the time being, from the maintenance period starting on December 14, 2011, the fine-tuning operations carried out on the last day of each maintenance period.

Moreover, the Governing Council also decided to reduce the reserve ratio, which is currently 2%, to 1% as from the reserve maintenance period starting on January 18, 2012.

Finally, the Governing Council announced its decision to increase collateral availability by reducing the rating threshold for certain asset-backed securities and by allowing national central banks to temporarily accept as collateral additional performing credit claims, i.e. bank loans, that satisfy specific eligibility criteria. These two measures will take effect as soon as the relevant legal acts have been published.

ECB Monetary Operations

On Monday, December 5, the ECB announced its weekly MRO.  The auction was conducted on Tuesday, December 6, and attracted bids from euro area eligible counterparties of €252.1 billion, €13.36 billion lower than the amount bid for in the previous week. The bid amount was allotted in full at a fixed rate equivalent to the prevailing main refinancing rate of 1.25%, in accordance with the current ECB policy.

On Tuesday, December 6, the ECB also conducted an auction for a seven-day fixed-term deposit intended to absorb €207 billion. This operation is designed to sterilise the effect of purchases made under the Securities Markets Programme that were settled but had not yet matured by the previous Friday, December 2.  The auction was carried out at a variable rate, with euro area eligible counterparties allowed to place up to four bids at a maximum rate of 1.25%. It attracted bids amounting to €246.3 billion, with the ECB allotting €207 billion or 84.03% of the total amount bid for. The marginal rate on the auction was set at 1%, with the weighted average rate at 0.65%.

On Wednesday, December 7, the ECB conducted a seven-day US dollar funding operation through collateralised lending in conjunction with the US Federal Reserve.  This operation attracted bids of $1.602 billion, which were allotted in full at a fixed rate of 0.58%.

On the same day, in accordance with the Governing Council's decision of September 15, 2011, the ECB, in conjunction with the US Federal Reserve, conducted an 84-day US dollar funding operation through collateralised lending. This attracted bids of $50.685 billion, which amount was allotted in full at a fixed rate of 0.59%.

Domestic Treasury Bill Market

In the domestic primary market for Treasury bills, the Treasury invited tenders for 91-day and 182-day bills maturing on March 9, 2012 and June 8, 2012, respectively.  Bids of €41.05 million were submitted for the 91-day bills, with the Treasury accepting only €1 million, while bids of €35.25 million were submitted for the 182-day bills, with the Treasury accepting only €0.5 million. Since €24.95 million worth of bills matured during the week, the outstanding balance of Treasury bills decreased by €23.45 million, to stand at €283.15 million.

The yield from the 91-day bill auction was 1.240%, i.e. 22 basis points lower than that on bills with a similar tenor issued on November 11, 2011, representing a bid price of 99.6875 per 100 nominal.  The yield from the 182-day bill auction was 1.330%, i.e. seven basis points lower than that on bills with a similar tenor issued on October 7, 2011, representing a bid price of 99.3321 per 100 nominal.

During the week under review, there was no trading on the Malta Stock Exchange.

On Tuesday, the Treasury invited tenders for 91-day bills, maturing on March 16, 2012.