Despite the rise in forex assets, the RBI continues to aggressively buy gold

Foreign currency assets of $19 billion were added to the reserve stock in July, a month since the inclusion of some Indian government bonds in the JP Morgan bond index.

Bond market analysts said $3 billion worth of these inflows were to index-eligible bonds alone.

But with aggressive gold buying amid global uncertainties, the Reserve Bank is at the same time adding to its gold stock in reserves and adding $3.4 billion to its stock of the yellow metal in reserves during the month. Compare this to the entire April-June period, during which gold added to reserves was valued at $3.8 billion.

RBI Governor Shaktikanta Das said at a post-policy media conference on April 5, “We are building gold reserves, the data is released periodically.” “All aspects are evaluated while creating a study and then we take a decision. “

As a hedge against inflation and foreign currency risks, the central bank’s objective in holding gold in reserves is primarily to diversify its foreign currency asset base. The central bank bought 37 tonnes of gold between January and June this year compared to 16 tonnes. Purchases were made in the entire calendar year of 2023. According to the latest RBI data, the RBI has gold reserves of 846.76 tonnes as of June-end.

The surge in gold purchases, despite rising bullion prices, largely reflects the central bank’s strategy to protect safety and the value of its reserves amid uncertainty caused by wars in West Asia and Eastern Europe.

The Reserve Bank is one of the top three central banks that hoarded gold in the first quarter of the calendar year, with only Turkey and China’s central banks buying more gold than India, according to data from the World Gold Council.

A combination of foreign exchange inflows and an increase in the value of gold in reserves pushed the country’s foreign exchange reserves to a record $675 billion as of August 2. Part of the increase in reserves is largely due to an increase in NRI deposits and FDI. flows, according to the Central Bank. Part of the increase in reserves may also be due to the revaluation of non-dollar assets vis-à-vis dollars.

Overall, India’s external sector remains resilient as key indicators continue to improve. 53 According to the RBI’s August policy statement, we are confident of meeting our external financing needs comfortably.