Central Bank sells NT$10 bil. worth of two-year NCDs, 1st time since '03
By Ted Chen ,The China PostTAIPEI, Taiwan -- The Central Bank of the R.O.C. yesterday stated that it sold NT$10 billion worth of two-year negotiable certificates of deposit (NCD), a practice not seen since 2003.
August 10, 2013, 12:08 am TWN
The auction of the NCDs attracted NT$58.7 billion in bidding funds, nearly exceeding the intended issuance amount sixfold.
The NT$100 billion worth of two-year NCDs was sold at an interest rate of 0.78 percent, slightly higher than the 0.6-percent rate seen in the one-year NCDs auctioned off in the previous week, exceeding the market expected range by between 0.7 and 0.75 percent.
The last time the central bank auctioned two-year NCDs was on July 15 of 2003, at an interest rate of 1.261 percent. Consequently, the central bank began a four-year streak in tightening monetary supply, with the interest rate rising from the low of 1.375 percent in 2003 to a high of 3.625 percent in 2008.
Following the move the market is rife with speculation that the central bank intends to raise interest rates, citing preceding circumstances observed a decade ago.
However, Central Bank Governor Perng Fai-nan denied suggestions that it wishes to raise interest rates, saying that the auction yesterday is aimed at gauging current market aptitudes. Perng reiterated that the central bank is retaining a stance of “moderate easing” on Taiwan's fiscal policy.
Institutional investors yesterday remarked that the zealous participation observed in the NCD auction indicates that Taiwan's banking sector is flush with funds. Institutional investors also stated that the outcome of the NCDs auction, which was completed at 8 basis points over the bond market, indicates that the markets have not reached a consensus on interest rate movements.
NCD issues are part of measures that may be taken by the central bank to absorb excessive money market liquidity.