Thailand’s central bank said it plans to boost holdings of Chinese government debt in Hong Kong, having already used its onshore investment quota, as record-low interest rates depress yields in the US and Europe.
If they have more government bonds available in the market, we will buy, Bank of Thailand deputy Governor Suchada Kirakul said yesterday in an interview in Bangkok. The main interest in purchasing yuan-denominated debt is diversification, she said, adding that China is now a major trading partner and one of the world’s biggest economies.
Central banks in South Korea and Nigeria said last week they have been buying yuan bonds, while Bank Indonesia also plans to buy the securities, as China’s capital markets open to outside investors and the currency is allowed to trade more freely. China’s 10-year Dim Sum bonds yield 3.19 per cent in Hong Kong and similar-maturity sovereign debt yields 3.31 per cent in Shanghai. Comparable yields for US Treasuries and German bunds are 1.65 per cent and 1.43 per cent, respectively, according to data compiled by Bloomberg.
The Bank of Thailand, which holds Dim Sum bonds and has used most of its $300 million quota to buy onshore yuan debt under China’s Qualified Foreign Institutional Investor programme, Suchada said. A separate 7 billion yuan ($1.1 billion) allocation for bond purchases in China’s interbank market has also been used, Suchada said, adding that the central bank_s yuan holdings only comprise Chinese government debt.
The bank needs to diversify its foreign-exchange reserves when there is some directional change in one currency so you can at least protect or secure the value of your wealth or reserves, Suchada said. The yuan strengthened 1.3 per cent versus the dollar in the past 12 months, while the euro slumped 14 per cent and the Swiss franc tumbled 26 per cent, according to data compiled by Bloomberg.
Thailand’s foreign-exchange reserves increased for three consecutive weeks to $175.3 billion in the five-day period ended July 27, central bank figures show. Funds invested in yuan assets aren’t classified as international reserves because the Chinese currency isn’t fully convertible.
We diversify just to get more returns as well, Suchada said. With major countries yields very low, we diversified into some emerging-market debt in Asia, she said. The central bank also plans to buy assets in developing nations outside Asia. The bank is expanding its investment universe and owns major currencies and some emerging-market Asian currencies, Suchada said.
Chinese Premier Wen Jiabao is seeking to reduce reliance on the US dollar after accumulating $3.2 trillion of foreign- exchange reserves as of the end of June, the world’s largest stockpile, and is making it easier for overseas investors to invest in the nation’s bonds.
China set aside 2 billion yuan of Dim Sum bonds for foreign central banks in a June 28 sale of government notes, attracting orders totalling 3.06 billion yuan from five bidders, according to the finance ministry.
China was Thailand’s biggest export market in the first half of this year, purchasing 11.9 per cent of the goods shipped from Southeast Asia’s second-largest economy, official data show. Thai and Chinese central banks signed a 70 billion yuan swap agreement in December to strengthen investment between the two countries. The three-year swap will probably lead to increased yuan settlement of trade between the two nations, Suchada said.
She estimated that the volume of transactions settled in yuan by Thailand’s companies increased to $115 million in the first half of 2012 from $67.8 million in the previous six months. It’s still less than 1 per cent of total trade between the two nations, Suchada said.
The Bank of Thailand still has scope to further ease monetary policy, said Suchada, who will retire at the end of September and attend her final policy meeting on September 5. The bank last month kept its benchmark interest rate at 3 per cent for a fourth time and cut growth and inflation forecasts as the global slowdown hurts exports and limits price gains.
The central bank cut its growth estimate for this year to 5.7 per cent from 6 per cent. Inflation will be 2.9 per cent in 2012 compared with an earlier prediction of 3.3 per cent, it said, while keeping the core inflation forecast at 2.2 per cent. The economy grew 0.3 per cent in the first quarter this year, while the consumer price index rose 2.73 per cent last month.
If there is no further inflationary pressure, it gives room to ease monetary policy in the future, she said.