The central bank said in a statement yesterday that it planned to issue NT$100 billion (US$3.14 billion) in 364-day certificates of deposit (CDs) on June 14, marking its third sale of such CDs this year.
With the central bank continuing to absorb excess liquidity from the banking system, economists said the bank was likely to maintain its low interest rate policy until later this year.
‘NOT SUBSTANTIAL’
“Clearly, the central bank has been absorbing funds in the market by issuing CDs, but the amount is not substantial,” Cheng Cheng-mount (鄭貞茂), Citigroup Taiwan’s chief economist, said by telephone, adding that the nation’s monetary policy was still “very loose.”
“Amid concerns over the uncertainties of the eurozone sovereign credit crisis, the central bank will likely continue to maintain a loose monetary policy until the third quarter, or maybe even after that,” Cheng said.
Since April 6, the central bank has sold a total of NT$200 billion in 364-day CDs — NT$100 billion last month and another NT$100 billion this month — in a bid to withdraw funds from the market, which it said had the same effect as “hiking the required reserve ratio by 0.79 percentage points.”
The new planned CD sales — in addition to the two previous issues — would be equivalent to raising the reserve requirement ratio by more than 1 percentage point.
However, Chang said that selling NT$100 billion in CDs a month would not have a significant impact on the market as at least between NT$200 billion and NT$300 billion a month is needed to effectively absorb excess liquidity in the banking system.
YIELDS
Last month’s auction of 364-day CDs yielded an average interest rate of 0.704 percent and had a bid-to-cover ratio of 3.81 times. This compares with an average yield of 0.71 percent from the sales of 182-day CDs on April 6, which had a bid-to-cover ratio of 3.33 times, bank data showed.
Next month’s sales of NT$100 billion in 364-day CDs will be aimed at bidders from local and foreign banks, bills and financial firms, credit cooperatives and Chunghwa Post (中華郵政), the central bank said in the statement.
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