The central bank may be looking at bulking up their gold reserves. Sources tell ET Now that the board of the RBI that met on Friday discussed the issue of diversifying allocation of reserves in favour of gold.
ET Now that RBI may look to increase gold reserves from the current 7% to 10% over a period of time. A roadmap will be prepared by the central bank and will be discussed next when the central bank board meets again on October 23rd.
“One of the RBI board members raised the issue on the need to diversify towards gold and less of US securities,” RBI Board member, who did not wish to be named told ET Now.
India's total foreign exchange (Forex) reserves stood at around $538.19 bn as of August 72020, the highest ever, with the Foreign Exchange Assets at around $492.29 bn and Gold Reserves at around $39.785 bn.
The board members also discussed whether RBI should keep building on reserves. “RBI has built significant reserves. We can support the rupee from high volatility without losing our import cover. We discussed if the RBI should keep buying more dollars,” the RBI Board member told ET Now.
Experts say the move to diversify RBIs reserve basket is a step in the right direction.
The move also comes at a time when US bond yields are at a 10-year low of 0.54%. Shoring up gold will be a defence against the current uncertainty due to COVID-19 combined with the possibility of an uptick in inflation.
Gold is one of the best performing asset classes in 2020. Gold hit record highs above $2000 an ounce this month before seeing its biggest daily drop in seven years early this week. Weak US dollar is leading to various central banks beefing up their gold reserves.
Countries like China have been shoring up their gold reserves for the last few months. The Indian central banks move will be aimed at bulking up, in line with other peers.
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