The stock of US treasury securities held by India fell $11 billion from $222.4 billion in October’20 to $ 211.4 billion as of end January’21 according to the latest release by the US treasury department.
The Reserve Bank is one of the largest investor in the US government paper though Indian banks operating in the US also park funds in these paper. “While safety and liquidity constitute the twin objectives of reserve management in India, return optimization is kept in view within this framework” The Reserve Bank said in its latest Report on Foreign Exchange Reserves.
Also, investment in securities become unattractive when yields rise. When bond yields rise, prices fall. From the balance sheet perspective of the investor, there is a mark to market loss to the investor when yields rise as the value of the portfolio contracts. The US Treasury benchmark trebled since August last year, but it is still less than half of its near term peak in 2018. The gauge yielded 1.64 percent last week.
India’s investment in US treasury securities is a direct function of the central bank’s stock of dollar assets. The pace of forex reserves assets pile-up too has slowed as dollars were needed to meet rising crude and commodities demand. “The Rupee was depreciating around that time to stock up dollars, the central bank may have sold to shore up dollar reserves, which could be used to stem in the local unit’s extended fall in value,” said Madan Sabnavis, chief economist at
.
Also the Reserve Bank has been buying dollars in the forward markets because of which the physical stock of dollars have not risen as expected. “I think it’s probably a reflection of India’s bop becoming more balanced, and intervention shifting from spot to forwards, so reserve accretion came down” said Rahul Bajoria, chief India economist at Barclays Capital. “Still, it also clearly reflects some diversification on part of the RBI.”
