25 Apr 2013

RBA to invest in China bonds

12:07 pm on 25 April 2013

The Reserve Bank of Australia is to invest some of its foreign currency reserves in Chinese government bonds.

Deputy Governor Philip Lowe said in Shanghai the bank has received approval to hold about 5% of its $A38 billion foreign currency assets in China.

"This decision by the RBA represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan," he said.

The ABC reports the move is part of a bigger plan to strengthen ties with Australia's biggest trading partner. Direct trading between the Australian dollar and China's renminbi was recently launched by Prime Minister Julia Gillard.

Dr Lowe said the People's Bank of China has approved an initial investment quota and the two central banks are working through the necessary agreements before the investment is actually made.

"This decision to invest in China is an important one. It reflects the broader economic relationship between China and Australia and our increasing financial ties," he said.

"It provides greater diversification of our investments and will help with our understanding of the Chinese financial markets."

AAP reports the RBA's investment in Chinese yuan (also known as renminbi), could amount to close to $A2 billion.