Bahrain central bank’s net foreign assets rebound in June

Net foreign assets at Bahrain’s central bank, an indication of its ability to defend its currency against market pressure, rebounded in June, the central bank said on Thursday.

The assets rose to BD820.6m ($2.18bn) in June from BD671.1m in May. However, net foreign assets at Bahraini retail banks fell in June, to minus BD1.26bn from minus BD1.20bn, meaning their liabilities exceeded assets.

Foreign assets have been under pressure as Bahrain runs fiscal and current account deficits fuelled by low oil prices. In May, net foreign assets of the central bank and retail banks combined sank to a record low of minus BD526.1m.

Read: Bahrain’s economy shrinks in Q1 as oil production dips

The central bank did not give a reason for the rebound in its assets during June. Bankers say the central bank sometimes uses swap agreements or other deals to obtain foreign currency as needed from retail banks, bolstering its reserves.

Also, analysts believe Bahrain’s diplomatic allies in the Gulf have been quietly providing it with infusions of hard currency to support its reserves.

For example, Bahrain made a private placement of $500m of government development bonds to an unnamed regional institution in April, according to Jean-Michel Saliba, regional economist at Bank of America Merrill Lynch.

In late June, Saudi Arabia, the United Arab Emirates and Kuwait said they would soon announce a formal, public assistance programme to support the country’s fiscal stability and economic reforms.

No details have yet been revealed.

Read: Bahrain dinar, bonds rebound after GCC allies pledge to avert debt crisis