During its monthly Monetary Policy Advisory Council meeting on 29 November 2007, the Central Bank of Malta left the central intervention rate unchanged at 4.25%.
The Governor of the Central Bank concluded that, at their current levels, official interest rates provided adequate support to the exchange rate peg. The Central Bank of Malta’s external reserves increased sharply in November, though this was due to the extension of minimum reserve requirements to credit institutions that operate predominantly with non-residents ahead of the entry into force of the relevant Eurosystem regulation. Excluding this factor, the external reserves continued to follow a moderate downward trend, which partly reflected the conversion of Maltese lira holdings into euro. Interest rate differentials in favour of the Maltese lira were broadly unchanged in a domestic financial market that continued to be characterized by stable conditions.
In its review of the current trends, the Monetary Policy Advisory Council noted evidence of continued buoyancy in the economy, with the Bank’s latest projections pointing to a sustained pace of economic activity during the second half of the year. The Council, however, observed that, against a backdrop of rising global prices of key commodities, it was important to ensure that domestic market structures do not accentuate external price pressures. In this regard, the Council emphasised that fostering improvements in productivity would help restrain inflation and safeguard the economy’s international competitiveness.
The Monetary Policy Advisory Council is scheduled to meet again on 28 December 2007.