The central bank yesterday announced it plans to auction NT$100 billion (US$3.1 billion) worth of 364-day certificates of deposit (CDs) and negotiable certificates of deposit (NCDs) on Friday next week, as well as raise the annual interest rates it pays banks on reserve accounts.
The planned sale of longer-dated CDs/NCDs and the reserve account rate hikes came after the central bank last week raised its benchmark interest rates by 12.5 basis points.
In a statement posted on the bank’s Web site, the central bank said financial institutions were welcome to participate in the auction. The new 364-day CDs and NCDs will be issued on July 12, it added.
On April 6, the central bank resumed a practice it had suspended for 18 months by auctioning NT$100 billion in 364-day CDs and NCDs to absorb excess funds from the banking system. Since then, the bank has sold NT$300 billion of such notes in three consecutive months, which would have the same effect as hiking the required reserve ratio by raising interest rates by nearly 1.2 percentage points.
In seeking to further increase borrowing costs, the central bank said in a separate statement yesterday that it would raise the annual interest rates it pays banks on demand and time deposits to 0.178 percent and 0.855 percent respectively, effective immediately. The rates were previously at 0.165 percent and 0.767 percent.
Local banks are required to place 55 percent of their required reserves in the central bank’s B reserve account and 45 percent in the central bank’s A reserve account.
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