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State Bank opens yuan, yen accounts to diversify forex reserves management

KARACHI: The State Bank of Pakistan (SBP) said two new nostro accounts are being opened in the Chinese yuan (CNY) and Japanese yen (JPY) to support diversification in the foreign exchange reserves management.
A nostro account is one that a bank holds in a foreign currency in another bank.
According to the SBP’s Annual Performance Review for 2015-16, a code of conduct for back-office operations has also been developed and implemented.
It said global financial markets were marked by three major themes in 2015-16: low-to-negative interest rates, high market volatility and heightened risk perceptions. In line with the overall guiding investment principles, the returns were optimised through diversification into new markets, it said.
‘Funds were deployed into international sukuk, adding to diversification gains from investment in Chinese govt bonds’
“In this vein, funds were deployed into international Islamic sukuk, adding to diversification gains from investment in Chinese government bonds, already in place,” said the SBP report.
Pakistan has been increasing financial, investment and trading ties with China.
“Efforts to optimise returns through portfolio diversification, effective foreign exchange management, effective market strategies and favourable market developments have resulted in higher returns on SBP’s foreign currency investment portfolio in 2015-16 compared to 2014-15,” said the report.
“The stability and ample liquidity in the foreign exchange market also significantly contributed in continued build-up of foreign exchange reserves, which increased by $4.4 billion during 2015-16 to reach a record-high level of $23.1bn at the close of the fiscal year,” said the report.
The foreign exchange market remained stable during the year after witnessing some downward adjustment in the first quarter of 2015-16.
With no major spikes, the dollar-rupee exchange rate witnessed only a moderate depreciation of 3 per cent in 2015-16.
The SBP report noted that remittances growth from the Gulf countries is falling, which can be attributed to economic difficulties arising out of a steep reduction in oil prices.
Home remittances grew at a smaller rate of 6.4pc to $19.9bn in 2015-16.
“The remittances have been a very important component of our external sector, as the trade deficit is largely funded by them. In 2015-16, they funded nearly 50pc of the country’s imports and were equivalent to 7pc of GDP,” said the SBP report.
During the year, a number of steps were taken to facilitate the flow of remittances.
A financial training and awareness programme for intended emigrant workers was launched at all seven Protectorate of Emigration offices and departure lounges of international
airports in coordination with the Bureau of Emigration and Overseas Employment, commercial banks and Civil Aviation Authority.
“To increase the overseas outreach, 36 new overseas tie-ups were added during the year in different overseas corridors, including South Africa,” said the report.



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