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April 26, 2017

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Taiwan's NCD rate hits 21-month low

The Taiwan central bank's latest auction of negotiable certificates of deposit (NCDs) saw its weighted average interest rate hit a 21-month low, amid a weak global economy and high liquidity in the local market.

The central bank sold NT$100 billion worth of 364-day NCDs at an interest rate of 0.805 percent, down from the 0.829 percent in the previous sale on Sept. 9, to hit its lowest level since February 2011. The latest auction attracted bidding funds totaling more than NT$347 billion.

The slowing economy in such countries as the United States and Japan, and the hot money in the markets have been sending financial institutions on an eager search for a safe haven to park their funds, dealers said, adding that the central bank's NCDs offer a relatively safe investment.

The weighted average interest rate of the central bank's NCD auction hit a recent high of 1.054 percent in August 2011, but has been falling since then as the central bank has decided to leave its key interest rate unchanged.

The central bank has auctioned off 364-day NCDs to take back hot money from the market since April 2010. So far, outstanding 364-day NCDs have totaled NT$1.2 trillion, with the sale having the same effect as the central bank raising the bank deposit reserve ratios by about 4.5 percentage points.

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