Central banks undertake ‘gradual but definite expansion’ of investment activities that look beyond their traditional boundaries, says a report by BNY Mellon in collaboration with Cambridge Judge Business School.
As central banks diversify their investments, the report forecasts that investment guidelines will evolve. “Although many central banks will continue to operate within relatively narrow investment guidelines, there are an increasing number of bespoke approaches – including hedging strategies to offset interest rates and commodity price shifts – that can be adopted without breaching mandates,” the report says.
The survey also found that 39% of central bank respondents already invest in equities; one third currently undertake securities lending; and 61% confirmed active participation in repo markets for government securities, with 39% investing in time deposits.
About half of central bank respondents said they are planning a technology upgrade, with some switching from in-house to third-party core systems and others building more robust defences against cyber-crime.
Simon Taylor, director of the MFin programme for experienced finance professionals at Cambridge Judge, said the project for BNY Mellon was particularly timely: “The BNY Mellon report shows that central banks, like other institutions, are seeking ways to increase yield, and are looking at new approaches that go beyond the traditional remit we usually associate with central bankers.”