The Bank of Lithuania will more flexibly invest foreign reserve assets
In response to the recent developments in the European and global economy and financial markets, as well as having taken in into account the recommendations of the World Bank, the Bank of Lithuania has updated its financial assets management policy. The changes provide preconditions for investing Lithuania’s foreign reserve assets more flexibly and, in the long run, more profitably.
“The return on one major source of foreign reserve assets management — exclusively safe government securities — has decreased in recent years and currently is close to zero. In order to invest foreign assets more effectively and achieve greater risk diversification, it is necessary to revise the management principles of these funds,” comments Mindaugas Vaičiulis, Director of the Banking Service of the Bank of Lithuania.
The Bank of Lithuania is going to add to its investment portfolio debt and equity securities (shares) of corporations with investment grades, also invest in longer-term bonds ensuring a higher return.
However, Lithuania’s foreign reserve assets will continue to be managed assigning the highest priority to their security and liquidity, i.e. guaranteeing total backing of litas in circulation with convertible currency and, also, ensuring the Bank of Lithuania’s other functions.
“Fluctuations in this investment portfolio can be greater in the short term due to changes in market values, however in the longer 3 year period, we would achieve higher returns due to barely inter-related investment strategies applied,” says M. Vaičiulis.
According to him, the tendency to diversify investment risk has also been surfacing in financial assets management by other central banks in Central and Eastern Europe, searching for possibilities to invest in other geographical markets or potentially more profitable segments of the financial market. This tendency has been observed on a global scale as well. For instance, in a survey of central banks by Central Banking Publications and the Royal Bank of Scotland on the trends in financial assets management, fourteen respondents stated as already investing or considering the possibility to invest national reserve assets in equity securities, i.e. shares.
Changes in reserve assets management will begin to be gradually implemented from 30 November this year, when the new financial assets management policy of the Bank of Lithuania will come into effect.
The Bank of Lithuania’s financial assets management policy (119.5 KB download icon) is published on the Bank of Lithuania’s website. The policy also presents comprehensive data on Lithuania’s official reserve assets.