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 considered that developments since the previous Council meeting did not justify a change in the monetary policy stance. The underlying stability in the Bank’s external reserves over the last few months had persisted: a small rise in July was followed by a further increase in August, though the latter was driven by one large transaction. At the same time, interest rate differentials in favour of the Maltese lira only experienced small changes, with a slight narrowing in the short-term differential coinciding with a widening in the long-term premium, reflecting divergent movements in euro area rates. On this basis the Governor concluded that, at its current level, the central intervention rate provided adequate support to the exchange rate peg. In the context of a tightening monetary policy stance in the euro area and elsewhere, however, the Bank would continue to monitor developments closely. In this regard, the Governor recalled that, while interest rate movements abroad had a strong bearing on the Bank’s own policy decision given the Maltese lira’s participation in ERM II, the timing and extent of changes in official interest rates were also influenced by other factors, primarily domestic financial market conditions, including market interest rates and the level of liquidity in the banking system.
In reviewing the latest economic data, the Council expressed concern about recent inflation trends, particularly rising food prices. The Governor stressed the importance of ensuring – including through the application of existing consumer protection safeguards – that price setting mechanisms were transparent and that prices reflected the wider choice available after the complete liberalisation of trade on EU accession".
The next Monetary Policy Advisory Council meeting is due to be held on 27 September 2006.