In the auction held Friday, the central bank sold NT$100 billion (US$3.35 billion) worth of 364-day NCDs. Then it witnessed the weighted average interest rate of the auctioned NCDs fall further on strong demand from many local financial institutions, dealers said.
The financial institutions participating in the auction offered more than NT$360 billion in funds to bid for the NT$100 billion NCDs, sending the weighted average interest rate lower at 0.829 percent from 0.853 percent recorded in the previous sale.
Dealers said as there are no imminent solutions to the lingering debt problems in the eurozone and few signs of an immediate turnaround in the global economy, financial institutions have been keen to find a safe haven to park their funds.
The central bank's NCD auctions have become a relatively safe instrument for these fund holders amid volatility in the global financial markets, they said.
The NCD auctions are open to local financial institutions, including banks, credit cooperatives, bills finance companies and Chunghwa Post Co., which operates post offices island-wide that take deposits.
Dealers said the central bank's NCD auctions aim to absorb idle funds from the market and the effect of the NCD sale is equivalent of the hikes in the bank deposit reserve ratios by the central bank.
During the period of April 2010 and September 2012, the central bank constantly auctioned off 364-day NCDs to take back hot money from the market.
So far, the outstanding 364-day NCDs have totaled NT$1.2 trillion, and the sale has the same effect as the central bank raising the bank deposit reserve ratios by about 4.5 percentage points.
The weighted average interest rate of the central bank's NCD auction hit a recent high of 1.054 percent in August 2011, but the rate kept falling as the central bank has decided to leave its key interest rate unchanged since then.
In the last quarterly policymaking meeting in June, the central bank again left the interest rates intact after it stopped its interest rate hike cycle in the third quarter of last year to boost the local economy.
The market is watching closely what conclusion the central bank will reach in the upcoming policymaking meeting scheduled for late September.
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