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 US 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 pummelled by a financial crisis in 1997-98 have spent the past decade hoarding reserves to help protect their economies from external disturbances. A looming US 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 per cent compared with 3.33 per cent for similar maturity US Treasuries. Local-currency Philippine debt maturing in 2018 yielded 7.16 per cent as of March 19.

"Given the volatility in the US dollar, some diversification won't hurt," said David Cohen, an economist at Action Economics in Singapore. "Even if the US does slide into a recession, continued growth in places like China" may help maintain economic expansion in the region.

US slowdown
Growth in the US economy slowed to 2.5 per cent in the fourth quarter from a year earlier. Half of the economists in a Bloomberg News survey this month expect a US recession this year.

China's economy expanded 11.2 per cent in the three months ended December 31, the fourth straight quarter above 11 per cent.

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 US 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.