BOT to invest part of global reserves in foreign equities
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THE BANK OF THAILAND may start investing 3-4 per cent of the country’s international reserves in foreign equities in an effort to manage currency risk due to global economic volatility.
The Cabinet yesterday approved an amendment to the Bank of Thailand Act that would allow the central bank to invest more in capital markets.
BOT Governor Dr Veerathai Santiprabhob said the objective of the amendment was to help the central bank reduce the risk from currency volatility in the global market.
Under the existing act, the BOT has been allowed to buy and sell bonds, foreign currencies, gold and silver, and deposits at central banks and foreign commercial banks.
Currencies have become more volatile since central banks in advanced markets have launched quantitative easing. Therefore, having more investment choices will help the BOT to diversify its risk from currency volatility. The capital market on several occasions has shown that it can be a tool for managing risk efficiently, Veerathai said.
Several central banks such as those in Malaysia, Hong Kong, mainland China and South Korea have embraced the capital market as a tool for stabilising liquidity in their countries, he added.
He said the investment in the capital market would be in equities and ETF (exchange-traded fund) indices. However, such investments would be small compared with those in bonds, and initially should be around 3-4 per cent of the international reserves.
The international reserves at present total US$110 billion.
The investment in equities will begin after the amendment has been approved by the National Legislative Assembly.
Separately, the deputy BOT governor for financial-institutions stability, Tongurai Limpiti, yesterday shared some of the intended outcome of the Financial Sector Master Plan III, running from 2016-2020.
She said Bangkok Bank was likely to qualify for a critical role under the plan in support of Thai companies investing in the Asean region, as it is the only Thai commercial bank with a footprint in every country in Asean except Brunei.
The Bank of Thailand will collaborate with other central banks in the region on the promotion of local-currency settlements for trade and investment. Recently, the BOT and the central bank of Malaysia appointed cross-currency dealers to act as clearing agents for the baht and the ringgit. The negotiations with other countries are ongoing, she said.
