Wed, Apr 25, 2012 - Page 12 News List

Central bank sells 20-year Treasuries at higher rate

By Kevin Chen  /  Staff reporter

The central bank yesterday sold NT$40 billion (US$1.35 billion) of 20-year Treasury bonds, with the interest rate reaching 1.725 percent, higher than the 1.708 percent of the similar-maturity debt it sold last month.

The bid-to-cover ratio of the 20-year bonds sale, an indication of demand, was 1.42 of bids totaling NT$56.65 billion, the central bank said in a statement.

The bank’s March 13 sale of 20-year bonds attracted bids for 1.44 times the amount of debt on offer, the bank’s data showed.

The central bank handled the auction of Treasury bonds on behalf of the Ministry of Finance, which will use the proceeds to finance debt repayment and public infrastructure construction.

However, the rising interest rate on the latest offer of 20-year bonds — coupled with the surge in the interest rate of the NT$30 billion 91-day Treasury bills it sold last week, the continuous rise in the overnight interbank interest rate recently and the bank’s renewed interest in issuing certificates of deposit — reflected the bank’s attempt to mop up excess market liquidity in view of potential inflationary pressures.

It also came as the bank held two press conferences in the past six days to address its concerns about the public’s expectations that inflation will grow.

On Monday, the central bank met the heads of nine major domestic banks to discuss mortgage risk management, after some developers reportedly used higher electricity rates and oil prices as an inflation hedge to market their real-estate products.

“Although it did not introduce tangible policy changes [on] Monday, we see this as a rather rare gesture taken by the bank to curb speculation in the property market,” Primasia Securities Co said in a note yesterday.

Yesterday, the overnight interbank interest rate was quoted at 0.5 percent, up 0.3 basis points from the previous close of 0.497 percent and marking yet another record high in the past three years.

The overnight interbank interest rate has risen 8.4 basis points since the government announced gasoline and diesel prices would rise by between 7 percent and 11 percent on April 1, the bank’s data showed.

“We now expect a more hawkish policy stance from the central bank, possibly including a [policy] rate hike in the second quarter,” Primasia said.

However, Bank of America Merrill Lynch said in a report yesterday that it expected the central bank to maintain its policy rates unchanged at its quarterly board meeting in June, if the nation’s M2 money supply growth stays within the bank’s target zone of between 2.5 percent and 6.5 percent this year.

The central bank is scheduled to release last month’s monetary aggregate statistics today. Its data showed slowing growth in February from January.

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