RBI stockpiles US treasury holdings by more than $2b

Mumbai: When in Rome, do as the Romans do.

The Reserve Bank of India (RBI), finding itself in crisis territory that foreign portfolio investors (FPI) must cross periodically, is borrowing their risk mitigation techniques. Like FPIs, Mint Road is stockpiling US treasury holdings, and has bought more than $2 billion worth of additional American sovereign debt.

The latest data for January released by the US Treasury show that India raised its US bond holdings to $164.3 billion, up 13 percent from $144.9 billion, a year ago. It’s at an all time high.

Investors are moving to safe haven assets such as the US dollar or the US dollar denominated Treasury securities.

“Two currencies tend to outperform whenever there is riskoff situation,” said Sameer Narang, chief economist, Bank of Baroda.

“One is the US dollar and the other is the Japanese yen. Central banks tend to shift to safer currencies during crisis situations, like the current one.”


The dollar strength can be gauged by looking at the way the US dollar index has strengthened, touching a three-year high. It is a trade-weighted index of the US currency that measures the value of the dollar, relative to a basket of currencies of its biggest trading partners.

Going by the Rs 90,000-crore worth of net sales by overseas investors in the Indian markets, it is likely that India’s forex reserves that are used to invest in US treasuries may drain considerably in the coming weeks, with Mint Road seeking to stabilise the rupee.

Bank of America Securities estimates that the central bank can freely sell $30 billion of its reserves to prevent any speculative attack on the rupee.

But the central bank is unlikely to unwind its investments in US treasury securities, believe another section of economists. India’s reserves are at $481.8 billion.


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