Reserve Bank's US treasury holdings touch an all-time high at $164.3 bn in January

The Reserve Bank, which has been snapping up greenbacks in the past two years, has also been lapping up US treasury bills and the holdings touched a record high in January

Press Trust of India March 25, 2020 11:53:19 IST
Reserve Bank's US treasury holdings touch an all-time high at $164.3 bn in January

Mumbai: The Reserve Bank, which has been snapping up greenbacks in the past two years, has also been lapping up US treasury bills and the holdings touched a record high in January.

The holdings rose by more than $2 billion between December 2019 and January 2020.

At $164.3 billion, the Reserve Bank's US treasury holdings is at an all-time high, show the latest data from the US Treasury Department.

The love for dollars and other US government assets began with the collapse of the gold standard or the Bretton Woods principles in the late 1970s and central banks moved to the fractional reserves system. Since then, the US dollar/T-bills have been the safest asset class for any central bank, despite getting one of the lowest returns.

Reserve Banks US treasury holdings touch an alltime high at 1643 bn in January

Representational image. AFP.

While during the 2008 global credit crisis the return had been close to zero, the coronavirus pandemic has also yanked down the interest rates in the US to 0-0.25 percent now and so will be the return on investments.

But for central banks, return is not the priority but safety and liquidity of their investments are.

Central banks, including the Reserve Bank of India (RBI), follow the principle of SLR (Safety, Liquidity and Return) for their investment decisions. Like its counterparts in other countries, RBI follows the safety first, liquidity second approach and return on their investment is only the third criteria.

According to the latest data released by the US Treasury, RBI raised its US bond holdings to $164.3 billion at the end of January this year, up 13 percent from $144.9 billion a year ago. In December, the holdings were at $162 billion.

RBI purchases these bonds on behalf of India. The US Treasury Department releases foreign holdings data on a country-wise basis.

With the holdings worth $164.3 billion, India was the 13th largest investor in the American treasury bills after Japan ($1.21 trillion), China ($1.07 trillion) and the UK ($372.7 billion).

Even the Cayman Islands is way ahead with holdings of $216.1 billion while Saudi Arabia is just ahead of India with $182.9 billion worth holdings.

According to an analyst, one of the major reasons for this massive spike in a month could be the exodus of foreign funds from the country since the beginning of the year. Overseas funds pulled out over Rs 1.13 lakh crore from equities and debt in the Indian market amid the coronavirus scare as they are taking refuge in US assets.

And the way RBI has been lapping up US assets, its clear that the central bank is also chasing safer assets, the analyst said.

In a recent report, Bank of America Securities said RBI has a strong dollar arsenal to defend the rupee with a $30 billion fire power.

In March, RBI has done two tranches of dollar-rupee swaps of $2 billion each as the rupee was plumbing new lows every day. It has promised to sell more dollars to defend the rupee -- something the central bank is doing for the first time openly.

This had the forex reserves falling for the first time in 25 weeks. For the week to 13 March, the forex reserves plunged by $5.35 billion to $481.89 billion. In the week before, the forex kitty was at an all-time high of $487.23 billion.

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