The Monetary Policy Advisory Council left the central intervention rate unchanged at 3.50%.
Following the meeting the Central Bank of Malta issued the following press release:
“The Governor observed that domestic financial market conditions had remained broadly unchanged since the previous Council meeting, such that the current monetary policy stance continued to be appropriate. After increasing in August, the Bank’s external reserves rose further in September, though this latest gain largely reflected special factors, including reversible inflows related to the activities of some companies engaged in international business operations. At the same time, the short-term interest rate differential in favour of the Maltese lira narrowed further in September, as a result of higher euro interest rates. In the light of these developments, and of the expected further increase in official euro interest rates, therefore, the Governor anticipated the need for a reappraisal of the Bank’s monetary policy stance in the near term.
Today’s monetary policy decision was taken against the background of an assessment of the economy’s foreign exchange earning capacity. In this context the Council noted that though there had been a further improvement in the export performance of the manufacturing sector in the second quarter, this was not complemented by a similar trend in the services sector, notably in transportation and travel. This factor had contributed to a widening of the current account deficit. The Council emphasized the importance of achieving a reduction in this deficit as a means of strengthening the economy’s external payments position, but pointed out that monetary policy could only play a limited role in this regard. A lasting correction in the current account deficit can only come about through focussed efforts by the Government and the other social partners designed to enhance Malta’s competitive position, including measures to control costs and raise productivity levels.”
The Monetary Policy Advisory Council is due to meet again on 31 October 2006.