RBI gold stockpile grows despite fall in overall forex reserves amid global uncertainties

Gold Reserves

The amount of gold held by the Reserve Bank of India (RBI), which is a part of the country's total foreign exchange reserves, has shown an uptick in the last few months, despite a fall in reserves overall. Forex reserves are made up of currencies of other countries, gold, instruments issued by the International Monetary Fund and so on.

Experts attributed the rise in gold reserves to global uncertainties — gold is internationally a safe haven asset — and a reduction in import duty, boosting domestic demand and making it easier for the RBI to accumulate the holdings.

“Asian (central) banks are increasingly accumulating gold in response to ongoing geopolitical uncertainty. This trend, which began after US sanctions on Russia following the war (with Ukraine), has gained momentum as nations seek to diversify their reserves,” said Dilip Parmar, a senior research analyst at HDFC Securities.

Finance Minister Nirmala Sitharaman on February 10 made it clear in the Lok Sabha that India’s rising gold reserves, including those held by the RBI, was not intended to replace any international currency.

“RBI is also buying gold to make sure it has adequate gold and not just as a basket of currencies,” Sitharaman said.

According to RBI data, gold reserves increased by $5.1 billion between September 27 and January 31. The holdings rose by 23 metric tonnes in terms of quantity.

The September 27-January 31 period was also when India’s total forex reserves started falling, from $704.885 billion to $630.607 billion, due to heavy intervention by the RBI in the forex market to defend a rapidly weakening rupee. The sale of dollars to support the rupee had a direct impact on total reserves since foreign currency assets (FCA) constitute the biggest component of reserves, and the dollar is the biggest component by far in that. Data showed that FCA had reduced by over $74 billion in that time frame.

Expressed in dollar terms, FCA include the effect of appreciation or depreciation of non-US units like the euro, pound and the yen held in the foreign exchange reserves.

Amit Pabari, managing director at CR Forex Advisors, said rising gold prices will revalue the RBI’s gold holdings, further enhancing the overall value of its reserves. At the same time, major central banks including the RBI are strategically shifting away from the dollar due to growing concerns over the rising US debt and the potential risk of a default.

As on March 31, 2024, total gold held by the RBI was 822.10 tonnes compared to 794.63 metric tonnes as on March 31, 2023. This increase was on account of the addition of 27.47 metric tonnes of gold during the year, as per RBI’s annual report.