The central bank yesterday dismissed a local report saying its recent auction of NT$100 billion (US$3.14 billion) at a lower average yield was aimed at lowering interest rates.
The bank said in an e-mailed statement that it had been issuing short and long-term CDs to absorb excess funds from the banking system, which would have the same effect as “hiking the required reserve ratio” in raising — instead of lowering — interest rates.
The statement came in the wake of a report by the Chinese-language Apple Daily yesterday that the central bank’s 364-day CD sales on Thursday — its second sale of this kind since April 6 — had resulted in an average interest rate of 0.704 percent, which was not only lower than the 0.71 percent interest rate from the sales of 182-day CDs, but also lower than the 0.745 percent rate of the previous 364-day CD sales.
The report concluded that the lower-than-expected 0.704 percent rate in the latest 364-day CD sales was proof that the central bank hoped to maintain a prolonged period of low interest rates, citing market expectations for an average rate of up to 0.8 percent.
In response, the bank said in the statement that the report’s conclusion “does not fit the facts.” The bank said it “had no intention of forcing interest rates lower” as the result of Thursday’s sales “was subject to market [mechanisms].”
Moreover, the sales of NT$200 billion in 364-day CDs to date this year was equivalent to “raising the required reserve ratio by 0.79 percentage point,” it said.
Thursday’s sales attracted 53 bidders, including bills finance firms and local and foreign banks, with a bid-to-cover ratio of 3.81 times, higher than the April 6 auction’s ratio of 3.33 times, bank data showed.
Earlier this week, Financial Supervisory Commission Chairman Sean Chen (陳冲) told reporters that low interest rates posed the greatest risk to the nation’s financial market. The central bank has kept a low profile regarding Chen’s remark since then, even though it had called an ad-hoc meeting on Tuesday.
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