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Why is the Reserve Bank of India buying gold?

Diversification of forex assets, away from the dollar, has gained popularity after Russia’s invasion of Ukraine invited international sanctions against the former

May 16, 2022 / 11:20 AM IST
Representative Image

Representative Image

India’s central bank has been buying gold steadily over the past four years, showing it is serious about diversifying the assets in which it holds the country’s foreign exchange reserves.

The Reserve Bank of India (RBI)’s purchase of gold is not a new trend. As the adjoining chart suggests, RBI has been buying gold in small quantities over several years.

That said, the purchases in FY22 stand out in terms of size. During the year, the central bank added 65.11 tonnes of gold to its pile. This is the highest purchase in a single fiscal year, second only to the 200 tonnes of gold bought in FY10 from the International Monetary Fund (IMF).

Gold 1605_001

There are some reasons behind the central bank’s gold purchases. To be sure, the RBI is not alone in its gold buying spree. Central banks across the world have been loading up on gold over the past several years, data from the IMF shows.

Diversifying assets