The Reserve Bank of India may have offloaded a portion of its gold holdings to shield its foreign-currency assets from the cascading fallout of the war in West Asia, according to an analysis by Bloomberg Economics based on publicly available data.
The RBI likely sold gold reserves worth roughly $12 billion in the two weeks through May 22, while buying $7.5 billion of foreign-currency assets, Abhishek Gupta, BE’s senior India economist, wrote in a report.
A fall in the reported value of the central bank’s bullion reserves came despite a hike in import duties on the precious metal, which should have boosted the value of the bank’s bullion and dollars. This suggests the RBI was selling gold, Gupta said in the report quoted by Bloomberg News.
The purported sales underscore policymakers’ concerns about the pressure India faces from sustained capital outflows and higher oil prices as the Iran war and effective closure of the Strait of Hormuz drag on. They also show the RBI is prioritising reserves of liquid foreign currency as a wider current-account deficit weighs on the rupee.
Governor Sanjay Malhotra is weighing all options available to stabilise the rupee, including an interest-rate hike and raising dollars from investors overseas, Bloomberg News reported earlier.
The RBI’s interventions in the foreign exchange markets have had some effect, helping the rupee outperform most peers in Asia since May 20, when the currency fell to an all-time low. The rupee was down 0.2 per cent to 95.36 on Tuesday.
As the world’s third-largest oil importer, India is burning through foreign currency as the war in Iran inflates its energy bill and batters the local currency.
The government has ramped up efforts to curb foreign outflows and cushion its economy from the fallout of the war, including hiking fuel prices and more than doubling import duties on precious metals. The RBI will likely continue rebuilding forex reserves wherever conditions allow, according to Gupta.
Silver curbs
On Tuesday, it tightened restrictions on silver imports by adding grain and powder forms to the list of restricted categories and mandating prior valid import authorisation.
Imports of silver in the form of grains, powder, other forms and where content is 99.9 per cent silver are restricted and importers would need to secure a valid import authorisation from the DGFT