of Reserve Bank of India (RBI) may have downloaded a part of it GOLD holdings to protect its foreign currency assets from the cascading effects of war in the Middle East, according to an analysis by Bloomberg Economics based on publicly available data.
The RBI is likely to sell gold reserves worth about $12 billion in the fortnight to May 22, while it bought $7.5 billion in foreign currency assets, Abhishek Gupta. EU to India’s top economist, wrote in a report.
A decline in the reported value of RBI’s silver bullion reserves came despite an increase in import duties on the precious metal, which should have boosted the value of the bank’s bullion and dollars. This suggests that the RBI was selling gold, according to Gupta.
The RBI did not immediately respond to an email seeking comment.
The purported sales underscore policymakers’ concerns about the pressure India faces from sustained capital outflows and higher oil prices as the war in Iran and the effective closure of the Strait of Hormuz drag on. They also show that the RBI is prioritizing liquid foreign exchange reserves as a wider current account deficit weighs on the rupee.
Governor Sanjay Malhotra is weighing all available options to stabilize the rupee, including an interest rate hike and increased dollar inflows from overseas investors. News Bloomberg reported earlier.
The RBI’s interventions in foreign exchange markets have had some effect, helping the rupee to outperform most of its peers in Asia since May 20, when the currency hit a record low. The rupee fell 0.2% to 95.17 on Tuesday.
As the world’s third-largest oil importer, India is burning through foreign exchange as war in the Middle East swells its energy bill and hits the local currency.
The government has stepped up efforts to curb foreign outflows and protect its economy from the fallout from the war, including raising fuel prices and more than doubling import duties on precious metals. Authorities are expected to unveil further measures to boost the rupee as soon as this week.
The RBI is likely to continue rebuilding forex reserves wherever conditions permit, according to Gupta. “Periods of dollar weakness, renewed foreign capital inflows or lower oil prices would create opportunities to add foreign currency assets,” he wrote.
By the end of March, the central bank had 880.52 metric tons of gold, of which 77% was held domestically. Six months ago it held 66% of its gold in the country. Most of its overseas holdings are with the Bank of England and the Bank for International Settlements, the RBI said in its six-monthly foreign exchange report in April.
The sharp jump in gold repatriation in recent years shows that the RBI, like other emerging market central banks, has been increasingly concerned about exposing its reserves held overseas as Russia’s assets were frozen by the West.
