Equities look set to stay in FX reserves portfolios
Despite 2022 losses and higher bond yields, central banks maintain commitments to the risky asset class
When central banks started to record hefty losses on their foreign exchange portfolios due to falling equity markets in 2022, some observers wondered whether reserve managers would retreat from this risky asset class. This sentiment was further compounded as higher interest rates boosted sovereign bond yields, reducing the incentive to diversify FX reserves.
For instance, Bank of Israel’s (BoI) reserves declined to $194 billion at the end of last year, from close to $209 billion in January. In
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