- Interest Rates increased to 3.5%

At the Monetary Policy Advisory Council meeting held on 25 May 2006, the Central Bank of Malta raised the central intervention rate by 25 basis points to 3.50%. The following press release was issued by the Central Bank after the meeting:

“On the basis of the analyses presented and the advice of the Council, the Governor concluded that, on balance, a tightening of the monetary policy stance was called for. Although the Bank’s external reserves had increased substantially in May reflecting the receipt of privatisation proceeds, there was additional evidence of an underlying downward trend. To a significant extent, this was associated with a progressive narrowing in recent months of the interest rate differential in favour of the Maltese lira, caused mainly by rising euro interest rates, which continued in May. The Governor expected that the decision to raise the Bank’s central intervention rate would enhance the attractiveness of Maltese lira assets, particularly bank deposits. An increase in interest rates also appeared appropriate in the light of the Council’s continuing concern about the rapid growth in imports of consumer goods and the further acceleration in the rate of inflation.

In its deliberations the Council recognised that the economy still seemed to be recovering modestly, but stressed that in a fixed exchange rate regime the primary focus of monetary policy was the stability of the currency. The latter is a necessary condition for sustained economic growth.

The Monetary Policy Advisory Council is due to meet again on 4 July 2006″.

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