India’s foreign exchange reserves reached an all-time high of $321 billion, up by $1.6 billion for the week ended September 2. The increase was on account of an increase in the gold reserves by $3 billion. According to the Reserve Bank of India, gold reserves stood at $28 billion for the reporting period. The previous high was reached in the week ended July 29, when the reserves touched $319 billion.
According to analysts, a significant increase in the gold reserves was an indication that the central bank may be holding on to more gold, which is considered a safe haven in uncertain market conditions. Experts attribute the rise in gold reserves to the increase in prices of the yellow metal. Moses Hardings, executive vice president and head, global market group of IndusInd Bank, said: “Gold prices have moved up sharply and hence the rise in value of outstanding gold reserves.”
After the US downgrade in August, the global markets tumbled and investors have been withdrawing funds from risky assets and putting it in safe havens like gold. The sovereign debt rating of the US was downgraded to AA+, against AAA earlier.
The upward trend is likely to continue for a while,” said Madan Sabnavis, chief economist, Care Ratings.
“Increase in gold reserves by $3 billion is a clear indicator that the central bank may be holding on to more gold, as this metal is a good substitute for the dollar to hedge against currency risks, given the fragile nature of the dollar and euro.
Although gold reserves were up, foreign currency assets fell by $1.3 billion to $285 billion due to revaluation. The special drawing rights and reserve position with the International Monetary Fund also went down by $24 million and $16 million, respectively. SDRs stood at $4.6 billion and the reserve position in IMF was $3 billion.
