A triple whammy of tightening factors is pushing banks to scale back purchases of central bank deposits at the fastest pace on record, a sign that market liquidity is shrinking.
Monetary policy tightening, a seasonal impact from tax payments, and an investment boom that is drawing cash into stocks are all coming at the same time.
That has cut demand for negotiable certificates of deposits (NCDs) and certificates of deposits (CDs) issued by the central bank — a key tool to manage liquidity as onshore banks use them to store excess cash.
Photo: Ann Wang, Reuters
Banks have cut NT$416.1 billion (US$12.85 billion) of purchases so far this month, the biggest monthly decline since at least 2002, when Bloomberg began tracking the data.
The total amount of outstanding NCDs and CDs has fallen to about a five-year low.
“As Taiwan’s central bank sticks with a tightening stance, while the hype around local stock and foreign bond ETFs [exchange traded funds] continues to attract money, banks are left with less accessible funds in hand,” Masterlink Securities Investment Advisory (元富投顧) economist Anita Hsu said.
The central bank increased policy rates in March and on June 13 said that it would raise the reserve requirement ratio (RRR) for banks next month.
That, coupled with people pulling money away from saving accounts to pay taxes or invest in stocks, resulted in tighter liquidity for lenders and hurt their appetite for the NCDs, said a central bank official who declined to be named as the person was not authorized to comment publicly.
With money market rates already ticking up and the reserve requirement ratio hike set to take effect on July 1, deposit purchases might not recover soon, the official said.
An auction on Wednesday of the central bank’s two-year NCDs recorded an average yield of 1.461 percent, the highest in more than two years.
Analysts expect short-term rates and interest rate swaps (IRS) — a measure of policy rate expectations — to rise further on the possibility that the central bank would keep raising borrowing costs.
That might mean liquidity continues to leave the system. One-year IRS yesterday reached the highest level since 2014.
“We do not rule out further tightening, via policy rate or RRR or both, if the real-estate market continues to overheat,” said Ju Wang (王菊), head of greater China forex and rates strategy at BNP Paribas SA. “We look for opportunities to re-enter IRS steepeners.”
MULTIFACETED: A task force has analyzed possible scenarios and created responses to assist domestic industries in dealing with US tariffs, the economics minister said The Executive Yuan is tomorrow to announce countermeasures to US President Donald Trump’s planned reciprocal tariffs, although the details of the plan would not be made public until Monday next week, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. The Cabinet established an economic and trade task force in November last year to deal with US trade and tariff related issues, Kuo told reporters outside the legislature in Taipei. The task force has been analyzing and evaluating all kinds of scenarios to identify suitable responses and determine how best to assist domestic industries in managing the effects of Trump’s tariffs, he
TIGHT-LIPPED: UMC said it had no merger plans at the moment, after Nikkei Asia reported that the firm and GlobalFoundries were considering restarting merger talks United Microelectronics Corp (UMC, 聯電), the world’s No. 4 contract chipmaker, yesterday launched a new US$5 billion 12-inch chip factory in Singapore as part of its latest effort to diversify its manufacturing footprint amid growing geopolitical risks. The new factory, adjacent to UMC’s existing Singapore fab in the Pasir Res Wafer Fab Park, is scheduled to enter volume production next year, utilizing mature 22-nanometer and 28-nanometer process technologies, UMC said in a statement. The company plans to invest US$5 billion during the first phase of the new fab, which would have an installed capacity of 30,000 12-inch wafers per month, it said. The
Taiwan’s official purchasing managers’ index (PMI) last month rose 0.2 percentage points to 54.2, in a second consecutive month of expansion, thanks to front-loading demand intended to avoid potential US tariff hikes, the Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said yesterday. While short-term demand appeared robust, uncertainties rose due to US President Donald Trump’s unpredictable trade policy, CIER president Lien Hsien-ming (連賢明) told a news conference in Taipei. Taiwan’s economy this year would be characterized by high-level fluctuations and the volatility would be wilder than most expect, Lien said Demand for electronics, particularly semiconductors, continues to benefit from US technology giants’ effort
‘SWASTICAR’: Tesla CEO Elon Musk’s close association with Donald Trump has prompted opponents to brand him a ‘Nazi’ and resulted in a dramatic drop in sales Demonstrators descended on Tesla Inc dealerships across the US, and in Europe and Canada on Saturday to protest company chief Elon Musk, who has amassed extraordinary power as a top adviser to US President Donald Trump. Waving signs with messages such as “Musk is stealing our money” and “Reclaim our country,” the protests largely took place peacefully following fiery episodes of vandalism on Tesla vehicles, dealerships and other facilities in recent weeks that US officials have denounced as terrorism. Hundreds rallied on Saturday outside the Tesla dealership in Manhattan. Some blasted Musk, the world’s richest man, while others demanded the shuttering of his