Monetary Policy Advisory Council - Interest Rates Unchanged

Thursday, September 29th, 2005

The Central Bank of Malta today left the central intervention rate unchanged at 3.25%. The decision was taken by the Governor at the end of the Monetary Policy Advisory Council meeting held this morning.

The Governor observed that since the previous Council meeting there had been no developments that would justify a change of the monetary policy stance, noting in particular the continued stability in financial market conditions. The Bank’s external reserves rose again in September, prolonging a trend in evidence since May. This increase occurred against a background of unchanged interest rate differentials, as both domestic and euro area yields were stable. The Governor, therefore, concluded that at its current level the central intervention rate provided adequate support to the exchange rate.

Commenting on the real economy, the Governor observed that recent economic data brought additional evidence of a moderate improvement. The marginal GDP growth rate registered in the first quarter was followed by an acceleration in the second quarter, although this was largely driven by public sector investment activity. In the external sector, the decline in exports slowed further in July, while imports contracted. In the labour market, private sector employment continued to increase though there was a small rise in the number of registered unemployed in August. Meanwhile, the latest price indicators pointed to the absence of inflationary pressures. On the fiscal front, evidence emerged of further progress, suggesting that the Government’s budget target for 2005 is achievable.

While these developments were welcome, the Governor concluded, their sustainability depended on a rigorous implementation of appropriate policies, particularly in response to the threat posed by continuing high oil prices and weak demand in Malta’s major export markets.

The Monetary Policy Advisory Council is due to meet on 27 October 2005.

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