Monetary Policy Advisory Council - Interest Rates Unchanged

Tuesday, February 28th, 2006

During today's Monetary Policy Advisory Council meeting, the Central Bank of Malta left the central intervention rate unchanged at 3.25%.

In its customary press release issued shortly after the meeting, it was stated that the Governor observed that financial market conditions were stable in February, as reflected in the behaviour of key indicators. The Bank’s external reserves were steady during the month, while the interest rate premium on the Maltese lira remained broadly unchanged, as both domestic and euro area interest rates moved only marginally. In these circumstances, therefore, official interest rates were deemed to be at the appropriate level. He added, however, that the Council will carefully monitor financial market developments in Malta and abroad in the context of rising international short-term interest rates to assess any possible impact on the exchange rate peg.

In this regard, the Governor expressed concern at the negative effect that the rise in international oil prices appears to have had on the economy during 2005. In particular, this was a major factor behind a sharp deterioration in the trade balance, which was expected to translate into a worsening of the deficit on the current account of the balance of payments. So far, there was no evidence that the increase in energy and fuel prices had prompted a response in terms of reduced consumption. The Governor stressed that the burden of the oil price shock on the external reserves could only be mitigated through increased savings and an improvement in export performance.

The Monetary Policy Advisory Council is due to meet on 28 March 2006.

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