- Increase in interest rates

At its monthly meeting held on 31 October, the Central Bank of Malta raised the central intervention rate by 25 basis points to 3.75%.

The following press release was issued by the Central Bank of Malta following the meeting:

“On the basis of the Council’s deliberations, the Governor concluded that an increase in official interest rates was called for. He pointed out that the decision was taken against the background of a further narrowing of the short-term interest rate differential in favour of the Maltese lira in October, mainly as a result of an increase in euro interest rates, and amid expectations of a continued tightening of monetary policy abroad. By increasing the differential to a level at which it provided stronger support for the exchange rate peg, the rise in the central intervention rate served to reaffirm the importance of exchange rate stability among the Bank’s monetary policy objectives.

The Governor further observed that while the Bank’s external reserves had extended their upward trend in October, this again reflected a number of one-off factors. The economy’s underlying foreign earnings capacity was, however, better reflected in the current account deficit. To the extent that higher interest rates dampen the relatively strong demand for credit by the personal sector and encourage savings, they should limit the demand for imports and help to contain inflationary pressures. Looking ahead, the Bank would nevertheless continue to monitor market developments both domestically and abroad”.

The next Monetary Policy Advisory Council meeting is scheduled for 27 November 2006.

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