The central bank is expected to absorb NT$73 billion (US$2.2 billion) in one-year redeposits from four state-run banks today as part of its efforts to absorb liquidity from the banking system while encouraging local financial institutions to accept time deposits from the public.
The central bank will absorb those redeposits at an interest rate of 2.468 percent, it said in a press statement on Monday.
The 2.468 percent interest rate is equal to the average annual rate for the 364-day negotiable certificates of deposit (NCDs) the central bank sold last week.
Taiwan Post Co (臺灣郵政), Bank of Taiwan (台灣銀行), the Agricultural Bank of Taiwan (台灣農業金庫) and the Land Bank of Taiwan (土地銀行) were among the first group of banks to sell the redeposits to the central bank.
"This move is to retrieve New Taiwan dollars from the market and lead interest rates upward in line with the central bank's policy," said Yang Kung-yi (楊恭逸), a senior trader at the Shanghai Commercial & Savings Bank (上海商銀), during a telephone interview yesterday.
The monetary policymaker has met chiefs of state-run banks twice since last month, urging them not to refuse the public's time deposits.
The central bank has received complaints regarding some financial institutions' attempt to convince consumers who intended to deposit large amounts of money to invest in wealth management products instead, without detailing potential trading risks, the central bank said in a previous press statement.
The central bank's move to absorb banks' capital does not necessarily mean the market is awash in liquidity, as the bourse is delivering its strongest performance in seven years, Yang said.
He declined to say whether the monetary policymaker would continue to raise interest rates in September, but said that "the central bank does not want Taiwan's rates to [mirror] Japan's."
The central bank last month raised the benchmark interest rate 0.25 percentage points for the 12th successive quarter, bringing the discount rate to 3.125 percent -- still one of the lowest rates in Asia. Japan's rate is 0.5 percent.
Cheng Cheng-mount (鄭貞茂), chief economist and vice president of Citibank Taiwan Ltd, said that taking in state banks' redeposits was only part of the central bank's normal operations and that the measure would have little impact on the market.
Cheng said that the central bank will raise the benchmark rate by 12.5 basis points in September.
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