Bulk of rise in forex reserves in Q1 due to gold
Jul 9, 2024
Synopsis
Reserve Bank of India added $5.6 billion to its stock of reserves in the June quarter, the latest Reserve Bank of India data indicated. Of this while foreign currency assets rose $1.9 billion during the quarter, the value of gold in reserves rose $3.8 billion during the quarter. India’s foreign currency reserves are at $652 billion as of June 28.
Bulk of rise in forex reserves in Q1 due to goldImage for representation
Gold accounted for 69 percent of reserves pile-up for the Reserve Bank of India during the April-June quarter benefitting from both volumes in terms of gold purchases and valuation gains due to price rise.
Reserve Bank of India added $5.6 billion to its stock of reserves in the June quarter, the latest Reserve Bank of India data indicated. Of this while foreign currency assets rose $1.9 billion during the quarter, the value of gold in reserves rose $3.8 billion during the quarter. India’s foreign currency reserves are at $652 billion as of June 28.
As per the latest available data with the RBI the RBI bought around nine tonnes of gold between end March and end May. The per tonne value went up from $63.44 million per tonne as of end March 2024 to $68 million in end May 2022. At the global level the demand from central banks is triggering a price rally in gold prices according to the World Gold Council. This in turn is helping them valuation gains.
“We are building up gold reserves, the data is released from time-to-time” said RBI governor Shaktikanta Das at the post policy media conference on April 5. “All aspects while building up the reserves are assessed and then we make a decision.”
The central bank’s stated objective of holding gold in reserves is mainly to diversify its foreign currency assets base, as a hedge against inflation and foreign currency risks.
The Reserve Bank is one of the top three central banks to accumulate gold in the first quarter of the calendar year according to the World Gold Council data with only Turkey and China’s central bank buying more gold than India.
Central banks globally have actively started accumulating gold more aggressively after the Russia- Ukraine war started in February of 2022. The RBI too has followed the trend of central banks globally. Besides, it is slowly moving physical gold bought overseas back home likely as a measure of precaution after the escalation of geopolitical tensions in the northern hemisphere
In what was an interesting quarter for the gold market, central banks made clear their commitment to the longstanding trend of gold buying. While the recent price rally may have impacted trade execution, for those central banks that manage their gold reserves more actively, we do not expect it will derail any strategic gold accumulation plans they may have, the World Gold Council said in iits recent report.
The Resrrve Bank has been actively accumulating gold as part of its resreves management strategy since December 2017. But it has become more aggressive post COVID.
[The Economic Times]
