Asian Central Banks Look to Invest Reserves in Region
Central banks from 16 Asian nations may invest more of their $1 trillion of foreign reserves in the region's debt as Federal Reserve interest-rate cuts reduce returns on U.S. assets.
“This is something that most of us, that are not yet investing in, will be looking at,'' Bangko Sentral ng Pilipinas Governor Amando Tetangco said in a March 23 interview in Jakarta. There can be “some kind of shift'' to Asian sovereign bonds, Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said in a separate interview on March 22, after a weekend meeting of policy makers from the region.
Asian countries pummeled by a financial crisis in 1997-98 have spent the past decade hoarding reserves to help protect their economies from external disturbances. A looming U.S. recession means the world's biggest economy may no longer be the best place for the region to invest those funds.
Indonesia's 10-year dollar-denominated bonds, for example, have a yield of 6.06 percent compared with 3.33 percent for similar maturity U.S. Treasuries. Local-currency Philippine debt maturing in 2018 yielded 7.16 percent as of March 19.
“Given the volatility in the U.S. dollar, some diversification won't hurt,'' said David Cohen, an economist at Action Economics in Singapore. “Even if the U.S. does slide into a recession, continued growth in places like China'' may help maintain economic expansion in the region.
U.S. Slowdown
Growth in the U.S. economy slowed to 2.5 percent in the fourth quarter from a year earlier. Half of the economists in a Bloomberg News survey this month expect a U.S faxless payday advance. recession this year. China's economy expanded 11.2 percent in the three months ended Dec. 31, the fourth straight quarter above 11 percent.
The dollar fell to a record low against the euro on March 17 before posting its first weekly advance against the European currency on March 21.
The U.S. Federal Reserve has cut its benchmark interest rate by 3 percentage points since September to help avert a recession in the world's largest economy, amid its worst housing slump in 16 years.
Governors from the South East Asian Central Banks grouping, or SEACEN, include Indonesia, Malaysia, Singapore, Thailand, Brunei Darussalam, Vietnam, the Philippines, Cambodia, Myanmar, South Korea, Mongolia, Fiji, Nepal, Papua New Guinea, Sri Lanka, and Taiwan. They manage about $1 trillion in reserves, according to Bloomberg data.
Sri Lanka's Cabraal said he is looking at “possible avenues to invest in other Asian countries.''
“It wouldn't have been on the agenda some years ago, but it is now very much on the agenda,'' Cabraal said. “You can see quite a clear shift in the mindset.''
Tetangco from the Philippines said central banks in the region will have to make decisions about investing more in Asian debt “at some point in the future.''
“We are looking at the opportunities for diversification into high-quality assets such as sovereign or quasi-sovereign securities,'' he said.