During today's Monetary Policy Advisory Council meeting, the central intervention rate was left unchanged at 3%. The following press release was issued by the Central Bank of Malta today.
The Governor considered that there were no pressures on the exchange rate peg and that, therefore, official interest rate levels were appropriate. The Bank’s external reserves, which had declined in July, recovered in August and the premium on the Maltese lira increased slightly. Domestic financial markets were characterised by a positive response to the issue of Government stocks on the primary market and there was no evidence of increased portfolio investment outflows after the removal of the remaining capital controls in May.
Inflation rose in July, reflecting changes in fuel prices and in the indirect tax regime, but core inflation was stable, suggesting that domestic demand remained weak. Expressing concern at the implications of rising international oil prices for the economy, the Governor stressed the need to contain the costs of other inputs so as not to jeopardise the incipient recovery in exports and in economic activity evidenced by the GDP data for the first quarter. Given the relatively large share of labour costs in the overall price structure, increases in wages should be matched by productivity gains, the Governor concluded.
The Monetary Policy Advisory Council is due to meet again on 29 September 2004.