The central bank yesterday auctioned NT$100 billion (US$3.13 billion) in 364-day certificates of deposit (CDs) to be issued on Monday, marking the third sale of such CDs this year, as the bank continues to mop up excess liquidity in the banking system.
The three sales of CDs are tantamount to a hike in the reserve requirement ratio (RRR) of more than 1 percentage point, as the bank said early last month that the issuance of short and long-term CDs would “have the same effect as raising the RRR.”
Since April 6, the central bank has issued a total of NT$200 billion in 364-day CDs — NT$100 billion in April and another NT$100 billion last month — in a bid to withdraw funds from the market after it decided to keep policy rates unchanged at March’s quarterly board meeting.
YIELDS
Yesterday’s auction of CDs yielded an average interest rate of 0.671 percent and had a bid-to-cover ratio of 3.72 times.
This compared with an average yield of 0.704 percent from the sales of 364-day CDs on May 7, which had a bid-to-cover ratio of 3.81 times, bank data showed.
The central bank said it has sold more than NT$970 billion in both short and long-term CDs this month, although a total of NT$1.08 trillion in CDs matured on Thursday.
Outstanding CDs reached NT$6.13 trillion as of Thursday, it said.
LIQUIDITY
Wu Chung-shu (吳中書), an economic research fellow at Academia Sinica, said by telephone that the central bank’s issuance of CDs has effectively absorbed liquidity in the banking system, as seen by the gradual increase in the overnight interbank call-loan rate.
Central bank data show that the overnight interbank call-loan rate had increased from 0.155 percent on April 1 to 0.178 percent on Thursday, after the bank said that it had ended “quantitative easing” measures to spur economic activity in March.
Wu said that the central bank was adopting a “moderate” approach to drain market funds, adding that the bank would not raise the RRR to contain excess liquidity in the banking system, unless inflation is very high.
“The central bank will not likely go so far as to adopt such a harsh measure as hiking the RRR, because loose monetary policy should not exit the market too hastily after the economy has shown solid signs of recovery,” Wu said.
POLICY MEETING
The monetary regulator is scheduled to hold its next policy meeting on June 24, when it will decide whether to hike interest rates, including the RRR and discount rate, after the first and second quarters posted robust economic growth.
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