The central bank announced Friday that it will auction NT$100 billion ($3.1 billion) in 364-day negotiable certificates of deposit (NCDs) in June, making it the third consecutive month for the central bank to have made the move, designed to retrieve capital from the market.

The central bank kept its benchmark interest rates unchanged at its March 25 quarterly board meeting amid concerns over high unemployment and the need to boost domestic consumption and investment confidence.

Central Bank Governor Perng Fai-nan said in a press conference after the March board meeting that Taiwan's quantitative eased monetary policy had ended and that the bank intended to issue long-term NCDs at appropriate times to contain liquidity in the financial system.

The bank subsequently continued to use open market operations to drain excessive liquidity it had pumped into the banking system to cushion Taiwan from the global credit crunch.

It issued NT$100 billion-worth of 364-day NCDs in April and May, with interest rates of 0.745 percent and 0.704 percent, respectively.

The bank said earlier this month that issuing short-term and long-term NCDs can achieve the same effect as raising the reserve requirement and that draining NT$200 billion through the issuance of NCDs can mean a hike of 0.79 percentage points in the required reserve ratio.

With another NCD auction scheduled for next month, traders said they expect it to result in a rise of over 1 percentage point in the reserve requirement.

The central bank lowered interest rates seven times by a total of 2.375 percentage points between September 2008 and the first quarter of last year. Since then, key interest rates have remained unchanged.

China Daily/CNA

(HK Edition 05/15/2010 page4)