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As it diversifies assets, India's central bank strategy has a heart of gold
From the Times of India, Mumbai
Saturday, January 4, 2025
The Reserve Bank of India has accelerated gold purchases since October to mitigate revaluation risks to its foreign exchange stockpile and minimise currency volatility, with a part of the reserves that have come off record highs since late September likely also being used to cushion the rupee's fall against the U.S. dollar.
The central bank bought 20 tonnes of gold in October and November, compared with 30 tonnes during the first six months of the current financial year, a Times analysis of latest RBI data shows.
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"The buying of gold by central banks is driven by the need to diversify assets in which forex reserves are held," Gaura Sengupta, chief economist at IDFC Bank, told the Times. "The high concentration of foreign currency assets in securities such as short-tenor U.S. treasuries opens up risks of revaluation loss when U.S. Treasury yields rise."
Cumulatively, the central bank has bought 50 tonnes of gold so far in FY25.
RBI's gold reserves are at 876.18 tonnes as of November 29, 2024. This financial year, gold prices have risen 19%. But prices were relatively stable in the two months during which the bank stepped up its gold purchases.
Significantly, unlike many of its peers -- such as the central banks of Turkiye, Switzerland, and China -- the RBI seldom sells gold, as it is a politically difficult decision. World Gold Council data showed that gold's share in India's foreign exchange reserves is one of the highest among major central banks, at more than 10%. ...
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