With good forex reserves, the Reserve Bank of India has decided to diversify its investments
Bengaluru: With good forex reserves, the Reserve Bank of India has decided to diversify its investments.
Presently, the exchange reserves stand at a record $560.63 billion.
Reports add that the RBI may increase its gold investments, as well buying dollars and exploring investing in AAA-rated corporate bonds for the first time.
“The RBI is likely to continue to buy dollars. The problem is the dollar deployment and getting good returns,” an official said, as reported by Economic Times.
It should also be noted that the RBI is studying the possibility of investing in AAA-rated corporate dollar bonds, which offer better returns than sovereign credit. Such investments have not been made in the past, so the central bank would move carefully.
Foreign investors have continued to pour money into the Indian stock market because of its stronger returns. Foreign direct investment flows, particularly towards Reliance Industries RELI.NS, have pulled in dollars into the country.
The website added that traders say the RBI has been intervening heavily in the spot market to prevent appreciation of the rupee, in turn adding to its reserves.
“The government is comfortable with current rupee levels. It needs to be competitive to help provide an export boost,” the official said.
A second source said dollar buying intervention will continue as both the RBI and the government are comfortable with a 73-75 per dollar range on the local currency.
Despite a contraction in gross domestic product expected in the current fiscal year to March 2021, foreign flows have remained healthy.
Foreign investors bought shares worth $2.52 billion in October, taking total investment in 2020 to $6.47 billion. Though FIIs are net sellers of bonds worth $13.98 billion in 2020 so far, they bought a net $459.30 million in October.
The rupee has fallen for three straight months to October. It is one of the worst-performing Asian currencies in 2020.
“Our 10-year yield is still at around 6% compared to near zero and negative interest rates globally, so we will see inflows continuing and RBI will keep buying dollars to prevent rupee appreciation,” the second source said.
The RBI has already started increasing its investment in gold gradually, the sources said.
Gold reserves stand at $36.86 billion as on Oct. 23 compared with $30.89 billion at the end of the last fiscal year in March, though a large part of this increase can also be attributed to valuation changes.
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