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The Reserve Bank of India (RBI) withdrew $66.73 billion from other central banks and overseas commercial banks in the first six months of the financial year 2022-23 in a bid to prop up the rupee which has been under pressure due to the appreciation of the dollar in the last few months.
The rupee has fallen nearly 11 per cent in 2022 so far as the dollar surged amid the rise in inflation across the globe and central banks, led by the US Federal Reserve, started hiking interest rates. Foreign portfolio investors have pulled out Rs 1.62 lakh crore (around $19.75 billion) from Indian markets in the last ten months.
On the other hand, the Reserve Bank’s gold holdings went up to 785.35 metric tonnes of gold (including gold deposits of 41.57 metric tonnes), up from 743.84 metric tonnes a year ago.
The RBI pulled out $58.9 billion from its deposits in other central banks and Bank of International Settlements during the six-month period ended September 2022, bringing down India’s deposits in central banks from $140.53 billion in March 2022 to $81.63 billion, according to the RBI’s half-yearly report on ‘Management of foreign exchange reserves’. India’s deposits in other commercial banks also declined by $7.83 billion to $29.32 billion.
The RBI sells dollars from its forex kitty to prevent a slide in the rupee.
As of September 2022, out of the total foreign currency assets of $472.81 billion, $361.84 billion was invested in securities, $81.64 billion was deposited with other central banks and the BIS and the balance $29.33 billion comprised deposits with commercial banks overseas, the report said.
While 447.30 metric tonnes of gold is held overseas in safe custody with the Bank of England and the BIS, 296.48 metric tonnes of gold is held domestically. In value terms (USD), the share of gold in the total foreign exchange reserves increased marginally from about 7.01 per cent as at end-March 2022 to about 7.06 per cent as at end-September 2022.
Foreign exchange reserves cover of imports (on balance of payments basis) declined to 10.4 months in June 2022 from 11.8 months at end-March 2022. The ratio of short-term debt (original maturity) to reserves, which was 20.0 per cent at end-March 2022, increased to 22.0 per cent at end-June 2022. The ratio of volatile capital flows (including cumulative portfolio inflows and outstanding short-term debt) to reserves increased from 66.6 per cent at end-March 2022 to 67.6 per cent at end-June 2022, the RBI said.
According to the central bank, the valuation loss, reflecting the appreciation of the US dollar against major currencies, amounted to $22.7 billion during April-June 2022 as against a valuation gain of $2.2 billion during April-June 2022.
The central bank has the mandate to invest up to $5 billion in the bonds issued by the India Infrastructure Finance Company (UK) Limited. As of September 2022, the amount invested in such bonds stood at $1.323 billion. The foreign currency assets comprise multi-currency assets that are held in multi-asset portfolios as per the existing norms, which conform to the best international practices followed in this regard. It says except fixed deposits with the BIS, commercial banks overseas, central banks and securities issued by supranationals, almost all other types of investments are highly liquid instruments which could be converted into cash at short notice. The Reserve Bank closely monitors the portion of the reserves, which could be converted into cash at a very short notice, to meet any unforeseen/ emergency needs, the report said.
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