The Central Bank of Malta left the central intervention rate unchanged at 3% during its Monetary Policy Advisory Council meeting held today.
The Governor considered that there was no conclusive evidence to suggest that the current monetary policy stance was not appropriate. Although the Bank’s external reserves declined further in January, this reflected normal seasonal patterns, together with the effects of higher oil prices and an on-going shift in consumption towards imports following the liberalisation of trade. At the same time, money market interest rates remained stable both in Malta and abroad so that the short-term premium on the Maltese lira was largely unchanged, while the long-term spread widened slightly.
The current level of official interest rates was also justified in the light of the prevailing domestic economic conditions. Inflation eased in December and was expected to continue to moderate in the coming months, as the impact of higher VAT rates diminished, while labour market conditions appeared to be stable. The moderate pick-up in tourism continued into the fourth quarter of 2004.
Referring to the latest data on merchandise trade, which showed a weak export performance, the Governor expressed concern that the export-oriented sectors of the economy seemed so far to be unable to fully exploit the opportunities offered by greater access to markets abroad resulting from EU membership. He stressed that improving productivity was indispensable to gain competitiveness and increase export earnings. In this context, an agreement between the social partners that secures this vital objective is desirable.
The next meeting of the Monetary Policy Advisory Council will be held on Thursday, 24 February 2005.