Uncertainties induced by the pandemic have forced the Reserve Bank of India (RBI) to reshuffle the weightages of its foreign currency assets. RBI’s deposits with other central banks and the Bank for International Settlement accounted for 33.37% of foreign currency assets at March-end, against 28.83% at end of September 2019. This re-balancing is at the cost of RBI’s investment in securities, which is down to 59.57% from 63.72% during the same period.
Foreign currency assets (FCA), gold, special drawing rights issued by the International Monetary Fund and reserve tranches maintained with it, make up total foreign exchange reserves. RBI’s FCAs are typically divided between investment in AAA-rated sovereign securities, deposits with other central banks and BIS, and, deposits with commercial banks overseas.
According to RBI’s half-yearly report on management of foreign exchange reserves, of the total foreign currency assets of $442.21 billion at end-March 2020, $263.45 billion was invested in securities, $147.55 billion was deposited with other central banks and BIS, and, the balance $31.21 billion comprised deposits with commercial banks overseas.
While the total foreign currency assets have gone up 10%, compared to September-end levels, RBI’s deposits with other central banks and BIS has increased disproportionately by over 27%. At the same time, the central bank’s investments in securities have risen by only 2.8% during the same period.
According to the RBI report, “Movements in the FCA occur mainly on account of purchase and sale of foreign exchange by the RBI, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the Central Government and changes on account of revaluation of the assets.”
During the same period, total foreign exchange reserves have increased 10% to $477.8 billion from $433.7 billion. At end-December, when reserves touched $460 billion, it was adequate to cover imports for 11.4 months, up from 10.4 months at the end of September 2019. RBI has not made avialable the import cover data for March-end.
Import cover of reserves is the traditional trade-based indicator of foreign exchange reserve adequacy. It shows how long imports can be sustained in the event of a shock.
As at March-end 2020, India’s forex reserves, which include foreign currency assets (FCA), gold, special drawing rights (SDRs) and Reserve Tranche Position (RTP) in the IMF, stood at $477.807 billion compared to $481.256 billion at the end of February 2020.
Within reserves, ratio of gold has risen to $30.578 billion at the end of March 2020 from $29.897 billion at the end of February 2020.
The ratio of short-term debt (original maturity) to reserves, which was 25.2% at end-September 2019, declined to 23.2% at end-December 2019.
The ratio of volatile capital flows (including cumulative portfolio inflows and outstanding short-term debt) to reserves declined from 86.3 per cent at end-September 2019 to 82.6 per cent at end-December 2019.
As at end-March, 2020, the Reserve Bank held 653.01 tonnes of gold, with 360.71 tonnes being held overseas in safe custody with the Bank of England and the Bank for International Settlements, while the remaining gold is held domestically.
In value terms (USD), the share of gold in the total foreign exchange reserves increased from about 6.14 per cent as at end-September 2019 to about 6.40 per cent as at end-March 2020.