Monetary Policy Advisory Council - Interest Rates Unchanged

Thursday, January 27th, 2005

The Central Bank of Malta left the central intervention rate at 3% following the Monetary Policy Advisory Council meeting held today. The following press release was issued by the Central Bank of Malta.

The Governor considered that, in the absence of major developments in the economic and financial environment since the previous Council meeting, the central intervention rate remained at an appropriate level. Though the Bank’s reserves remained largely unchanged in February, the country’s external accounts continued to be influenced by a number of structural factors, including the liberalisation of trade and capital movements and the rise in the fuel import bill. Domestic interest rates were stable, so that the short-term premium on the Maltese lira remained at the month-ago level and the long-term spread narrowed slightly.

The latest information available about the domestic economy suggested continued sluggishness, as evidenced by a weak export performance and an unchanged level of unemployment. Furthermore, the incipient recovery in tourism appears to be fragile. As expected, inflation continued to moderate in January.

The Governor stressed that in an economy like Malta's that is heavily dependent on trade, the generation of rapid and sustained growth depends on boosting competitiveness through changes in relative prices and wages. He emphasized that this can be brought about much more effectively through specific fiscal and structural reforms rather than through monetary and exchange rate policies.

The Monetary Policy Advisory Council is due to meet again on 5 April 2005.

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