MUMBAI: The Reserve Bank of India is trimming its holding of US Treasuries as it joins many other emerging economies which have been selling off US bonds amid rising rates. Yet it figures in the list of top fifteen foreign lenders to the US government.
RBI sold $ 16.3 billion worth US treasury (USTs) bonds since April with its stock slipping from $157 as of end March to $ 140 billion as of end August, according to the latest data released by the US Treasury department. In the same period, China sold USTs worth $22.6 billion, while Taiwan sold $6.9 billion worth UST
This could be to reduce their mark-to-market losses as bond prices fall when interest rates rise. In the case of India it is also due to the fact that RBI needed US dollars to sell in the market to stop the steep slide of the Rupee. The Indian central bank sold foreign currencies worth 18.6 billion in the spot market since April to rein the value of the rupee.
Foreign portfolio investors have pulled out more than $10 billion of their investments in the Indian markets since April. This has resulted in the rupee losing more than 10 per cent in value against the dollar. "If FPI flows do not revive amid an US-China trade war, the RBI may need to sell another $10-15 billion by March" said a report by Bank of America Merrill Lynch. There could be more pressure on the RBI to sell its holding of US bonds to meet dollar demand.
The Reserve Bank could also be using a part of the sales proceeds of USTs to buy gold as it is seen as an hedge against volatile currencies. In the same period, the RBI has bought 6.3 lakh troy ounce worth gold The outstanding stock of gold in its reserves rose to 18.64 million troy ounces in August from 18.01 million troy ounces in March'18 according to the data submitted to the IMF.
Of the $400 billion worth foreign currency reserves as of August 2018, $239 billion is invested in top rated sovereign bonds, $ 20 billion is in gold and the balance is parked as cash with foreign central banks, commercial banks and multilateral agencies.
Even as RBI is selling its stock of USTs, India is still among the top 15 investors of US sovereign debt figuring 13th in the list ahead of certain advanced economies such as Canada, Australia and France.
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