During today’s Monetary Policy Advisory Council meeting, the Governor of the Central Bank of Malta decided to leave the central intervention rate unchanged at 3%. The following is a reproduction of the press release issued by the Central Bank of Malta.
The Governor concluded that official interest rate levels continued to provide sufficient support to the exchange rate peg. The premium on the Maltese lira had remained stable throughout June and the observed decline in the Bank’s external reserves largely reflected a number of special factors, including the higher cost of oil imports. Credit institutions meanwhile continued to be net buyers of foreign exchange from the market.
Looking ahead, the Governor identified some factors that would influence the Bank’s monetary policy stance in coming months. He observed that recent evidence of a stronger export performance combined with an improvement in business sentiment could, if they persist, lead to a more favourable current account outcome.
The latest data on inflation and the Government’s fiscal position also provided indications that would lend support to the current policy stance. Against this, the Governor noted that the incipient upward trend in interest rates abroad and its impact on the Maltese lira premium, and possibly on portfolio investment decisions, would tend to weaken such support. Any departure from the budget deficit target for 2004 contained in the Government’s Convergence Programme 2004-2007 would have a similar effect.
Consequently, the Bank would be closely monitoring such domestic and external indicators for any developments that might justify a review of the policy stance so as to ensure continued support for the exchange rate peg.
The Monetary Policy Advisory Council is due to meet again on 29 July 2004.