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regular-article-logo Thursday, 30 May 2024

RBI can buy gold and AAA rated corporate bonds

Foreign exchange reserves of the apex bank have jumped to more than $560 billion at present from $478 billion in March

Our Special Correspondent Mumbai Published 05.11.20, 02:01 AM
The central bank has taken a liking to the yellow metal in recent times and has stepped up its investments.

The central bank has taken a liking to the yellow metal in recent times and has stepped up its investments. Shutterstock

Flush with the inflow of dollars, the Reserve Bank of India is exploring the possibility of buying gold and AAA rated corporate bonds as its traditional investment in government securities is witnessing diminishing returns in the wake of an easy monetary policy being followed by central banks across the world.

Foreign exchange reserves of the apex bank have jumped to more than $560 billion at present from $478 billion in March, with gold holdings valued at $36.86 billion.

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The central bank has taken a liking to the yellow metal in recent times and has stepped up its investments.
By the end of March, the apex bank held 653.01 tonnes of gold, with 360.71 tonnes overseas with the Bank of England and the Bank for International Settlements. During the previous fiscal, the RBI bought more than 40 tonnes.

In value terms, measured in dollars, the share of gold in the total foreign exchange reserves increased to 6.40 per cent in March from 6.14 per cent.

However, at the same time, forex reserves have swelled with a rise in both foreign direct investment and portfolio inflows. Reliance Industries, for instance, has mobilised close to $25 billion by selling stakes in its digital services and retail arms.

FPIs have also invested close to Rs 49,000 crore in the equity markets so far this calendar year. But, the central bank has been intervening in the forex markets by purchasing dollars and keeping a lid on the rupee’s appreciation. For instance, in August, it made a net purchase of $5.3 billion in the spot markets.
Reports now say that the RBI is looking to diversify its investments.

A Reuters report said that the Indian central bank which has seen its returns fall is likely to increase its gold investments and also look at buying AAA rated corporate bonds which provide better returns than sovereign credit.

“Large interventions by the RBI in the forex market stalled a major hardening of the rupee. Given the already high forex reserves, the extent of intervention by the RBI may contract,” a recent note from Anand Rathi Research said.

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