RBI shifts strategy: Cuts central deposits, boosts US Treasury bets
What's the story
In a major shift, the Reserve Bank of India (RBI) has reduced its deposits with other central banks and increased its investments in US Treasury bills. The move highlights a growing preference for globally liquid assets amid rising geopolitical tensions. According to the RBI's Half-Yearly Report on Management of Foreign Exchange Reserves, this strategy has also strengthened India's foreign exchange reserves during the transition period.
Deposit reduction
Significant drop in deposits with other central banks
The RBI's deposits with other central banks have dropped drastically from 25% in March 2022 to just 8% at the end of March this year. Meanwhile, investments in securities such as US Treasury bills have surged from 67% to a whopping 84% during the same period. This shift highlights a clear preference for globally accepted liquid assets amid heightened geopolitical uncertainties.
Investment shift
Strategic shift in RBI's investment approach
The RBI's report also shows that while foreign currency assets (FCA) remained largely stable over four years, the composition of investments changed. Deposits with commercial banks fell to a low of 4.2% at the end of March 2023 before steadily rising to 7.2% by this year's end. This change further highlights the strategic shift in RBI's investment approach amid global economic uncertainties.
Reserve growth
India's total foreign exchange reserves increase
India's total foreign exchange reserves have grown to $691.1 billion at the end of March this year, up from $607.3 billion at the end of March 2022. Of these reserves, FCA made up a significant portion with $552.8 billion, followed by gold worth $115.2 billion and special drawing rights worth $18.6 billion in the International Monetary Fund (IMF).