Dear Reader,
The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. Picture this. The US Federal Reserve is making a loss, the Reserve Bank of India has a huge, short dollar position on which it may be making a killing and it has beefed up its gold holdings just like all big central banks, from Bank of Japan to European Central Bank. All of these actions are intentional.
Central banks are the essential contrarians when markets take things too far. The Fed adjusts policy rates, essentially deciding how much it will gain or lose on its liabilities in its role as the banks’ bank. It also buys or sell securities depending on whether it is implementing quantitative easing or tightening. These are, of course, not tactical trading techniques, but longstanding policies that have trading implications.
In a world where economic uncertainty is perhaps near peak with traditional global trade understandings being upended, central banks are just like any other investor. The only difference is that investors protect their portfolio and for central banks, the portfolio is the economy of the nation. Bullion is a proven financial hedge against uncertainty and in that respect, central banks across the world have been loading up over the past decade.
The bullion craze has paid off. Gold is the RBI’s best performing asset for FY25. Dinesh Unnikrishnan explores the central bank’s balance sheet here and notes that the RBI’s gold holdings increased by 57.48 metric tonnes during the year which by value surged 57.2 percent. Note that the precious metal’s price has been climbing steadily over the past year. Loading up on gold makes central banks just like any other investor and most fund managers. After all, gold is the most crowded trade right now, according to Bank of America fund managers’ latest survey.
Globally, central banks are adding heft to their balance sheets by diversifying their assets and that entails selling dollars. This is a classic and sound investing principle that central banks have adopted. The RBI, too, has increased the proportion of gold and its foreign currency assets include those denominated in variety of currencies, though dollar still dominates.
That brings us to the RBI’s market operations which fetched it handsome profits. The central bank has become a big and frequent trader in the foreign exchange market, necessitated by rising volatility globally. In FY25, it bought $39.87 billion dollars and sold $36.42 billion, becoming a net seller of dollars. Because of these, the RBI could transfer a massive Rs 2.6 trillion surplus to the government. Our Chart of the Day shows how frequent trading has fattened the RBI’s pockets.
The intention is to not make a profit, which is incidental. The RBI’s intention while intervening in the market is to curb volatility and in the present times, it is making a huge profit. Gains can also turn into losses as in the case of the Fed. The Fed transfers a surplus to the US treasury every week and suspends this transfer if it makes a loss. In 2024, the Fed reported a loss of $78 billion.
Does that mean that central banks are like just another investor and sometimes they make profits and sometimes they get hit?
While that is true, there is a cardinal difference between central banks and market investors. Central banks don’t mind huge losses and can take it on their balance sheet. Their goal is not profits but to nudge the markets towards discipline and stability. The intention of market investors, on the other hand, is to test boundaries and make as much profit as possible. The outcome and the decisions of both parties may look similar but there is a wide gap between the goals of the two.
Volatility is a trader’s best friend and a central bank’s worst enemy. Traders thrive in volatility while central banks pursue stability. Together, they make one big, beautiful market.
Investing insights from our research team
Weekly Tactical Pick: Rural focus to benefit this FMCG major
Bajaj Auto Q4 FY25: Is it time to hitch a ride?
Cummins banks on global tailwinds despite Q4 blip
Can this home textiles player withstand the heat of US tariff uncertainty?
Sky Gold and Diamonds: Is sky the limit?
SP Apparels: A major gainer from India-UK FTA
Landmark Cars: Urban slowdown, new stores act as speed breakers
What else are we reading?
IndiGo’s record profits overshadowed by Gangwal’s stake sale, a signal to buy or a red flag?
Data Story: IBC showed big success in FY25, but its failures are bigger
Can India use America’s MAGA moment to accelerate MIGA? Can we ‘nudge’ our way to higher growth? (republished from the FT)
RSS@100: Unravelling the road map for next 25 years and beyond
Even cinema calls out POCSO misuse; law needs safeguards
WhatsApp status in a court of law
Decisive triumph of hard power, questions over soft power
Tech and Startups Wipro’s Agentic AI increases efficiency by 20-35% in software development, says CTO Sandhya Arun
Technical Picks: SBICARD, GLENMARK, GPPL
Aparna Iyer
Moneycontrol Pro
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
