NCD sale results show hopes of gradual interest rate rise
CNATAIPEI--A higher-than expected interest rate garnered in the latest auction of negotiable certificates of deposit (NCDs) by the central bank showed market hopes that local interest rates will gradually increase, market analysts said yesterday.
August 11, 2013, 12:02 am TWN
The weighted average interest rate in the auction held Friday to sell NT$10 billion (US$334 million) hit 0.78 percent, higher than a previous market estimate of 0.70 percent to 0.72 percent.
The average interest rate in the NCD auction was also higher than a 0.716 percent interest rate in an auction of two-year government bonds by the central bank on behalf of the Ministry of Finance last month.
Since the U.S. Federal Reserve is likely to scale back its current monthly US$85 billion bond buying program later this year as the U.S. central bank has hinted, the market has widely expected that with liquidity depleting, interest rates at home and abroad could increase gradually.
Analysts said Friday's NCD auction simply pointed to such market expectations, while some analysts even suspected the local central bank is considering the possibility of raising interest rates.
The central bank left its key interest rates unchanged after a quarterly policy-making meeting held on June 27 to maintain ample liquidity to boost the economy.
That was the eighth consecutive quarter in which the central bank has left its key interest rates unchanged, with the discount rate remaining at 1.875 percent.
Friday's NCD sale was the first auction for the central bank to sell two-year NCDs since the last auction of such NCDs held in July 2003, while the bank has frequently auctioned 364-day NCDs and NCDs with a shorter maturity.
Most analysts said the two-year NCD auction showed the central bank's intention to further absorb idle funds from the market, but it remains to be seen whether the auction is paving the path for interest rate hikes in the future.
They said it was possible for the central bank to use the latest auction to test the waters in the market as the NT$10 billion amount was small. Analysts added that it was worth observing how frequently two-year NCDs auctions will be held, and what the size of the future sale should be.
The NCD auctions are open to local financial institutions, including banks, credit cooperatives, bills financing companies, and Chunghwa Post Co., which operates post offices all over the island.