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NCD interest rate falls to 3-year low: central bank

TAIPEI, Taiwan -- The weighted average interest rate of the central bank's auction of 364-day negotiable certificates of deposit (NCDs) hit a more-than-three-year low on Friday, showing the local market is full of idle funds.

The central bank website yesterday announced the auction result of 364-day NCDs, with the weighted average interest rate falling to 0.564 percent, the lowest since the central bank resumed sales of the 364-day market instrument in April 2010.

The weighted average interest rate in the auction of two-year NCDs fell to 0.756 percent in November from the previous month, according to central bank data.

The central bank is next scheduled to sell NT$10 billion in two-year NCDs on Dec. 13, the fifth sale since August of NCDs with that mature after a 10-year suspension.

NCD auctions, which are used by the central bank to absorb idle money from the market, are open to local financial institutions, including banks, credit cooperatives, bills financing companies, and the Chunghwa Post Co., which operates post offices all over the nation.

After the U.S. Federal Reserve decided to leave its monthly US$85 billion bond-buying program unchanged in a policymaking meeting held on Sept. 17-18, foreign investors kept moving funds into the region to push liquidity further up, analysts told the United Evening News.

However, The Fed sent investors a clear signal that it expects to begin tapering in the “coming months” its US$85 billion bound-buying program, likely to push up weighted average interest rates of 364-day NCDs and NCDs with a shorter maturity.

The central bank resumed auctioning off two-year NCDs in August after a 10-year suspension of NCD sales with such a maturity. In the meantime, the central bank has frequently auctioned 364-day NCDs and NCDs with a shorter maturity.

The market had previously expected that the central bank would use a two-year NCD sale to pave the way for an interest rate hike on hopes that the Fed would scale back its stimulus measures as early as September.

It turned out, however, that the U.S. central bank left the last round of quantitative easing intact in its September policymaking meeting.

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