The Central Bank of Malta today left the central intervention rate unchanged at 3%. The decision was taken by the Governor at the end of the Monetary Policy Advisory Council meeting. The following press release was issued by the Central Bank following the meeting.
The Governor recalled that the Bank’s primary objective in conducting monetary policy was price stability, which is widely acknowledged to be a key foundation for securing sustained improvements in economic performance and living standards in the long term. The Bank seeks to achieve this objective by pegging the Maltese lira to a basket of currencies of low-inflation countries.
Referring to the interest rate decision, the Governor noted that, at their current level, official interest rates provided adequate support to the exchange rate peg. He explained that the drop in the Bank’s external reserves in October and November reflected the usual seasonal pattern, which was exacerbated by a number of other factors, including payments related to oil imports and adjustments to the liberalisation of trade and capital flows earlier in the year. Domestic money market interest rates remained unchanged, which contributed to the stability of the premium on the Maltese lira, while investors’ response to the latest issue of long-term Government debt securities was positive.
Turning to the performance of the domestic economy, the Governor observed that, as shown by the latest GDP figures, output growth continued to be weak, driven by moderate expansion in domestic demand. At the same time, inflation decreased slightly and there were some positive signs from the labour market, with the trend decline in employment being halted and partly reversed.
The Governor welcomed the further fiscal consolidation envisaged in the Budget for 2005, as well as the measures that aim to increase flexibility and improve productivity across the economy. However, he stressed that a greater emphasis must be placed on permanent cuts in general government expenditure as part of the deficit reduction exercise.
The Monetary Policy Advisory Council is due to meet again on 30 December 2004.