In the News

Outstanding deposit certificates hit record high

• Publication Date：03/10/2010
• Source： China Times

Outstanding negotiable certificates of deposit issued by the Central Bank of the Republic of China reached a record high of NT$6 trillion (US$188.4 billion) March 9, reflecting the great amount of idle money in the banking system.

Statistics from the central bank showed it has offered NT$116.8 billion in NCDs so far this month to prevent excessive funds from aggravating price hikes in the real estate market.

In comparison with the tally a year ago, the central bank has drained NT$1.6 trillion more via NCDs from the money market. This figure means the CBC absorbed an averaged NT$4.3 billion per day from the banking system.

However, there are still too many idle funds in the market, making it difficult for the administration to immediately cool down the property market, unidentified executives from private banks said.

Given the shortage of domestic investment targets, this excessive money exacerbated the upswing of real estate prices that has been lifted by foreign capital influx.

The reading for outstanding NCDs can reflect the condition of idle funds as some banks use their excessive capital to buy NCDs from the CBC.

In the early days, only banks with aggressive lending practices were able to purchase NCDs as the CBC uses the instrument as a tool to encourage banks’ loan business. But the situation has been reversed in recent months amid expanded NCD offers.

The interest rates for 30-day, 91-day and 182-day NCDs currently stand at 0.57 percent, 0.61 percent and 0.71 percent, respectively.

Meanwhile, the overnight interbank rate surged to a 10-month high of 0.123 percent March 9 following central bank moves to absorb liquidity. This development could pave the way for further rate upturn.

A low interbank rate could lead to inflation and the formation of asset bubbles, contrary to the CBC’s preference, according to unnamed private bank officials. Taking into account the current market situation, the central bank is adopting a gradual approach to drain market liquidity while raising the overnight rate. These measures comply with its loose monetary policy that features a tightening bias. (HML-THN)