Apex Bank of India Exploring New Investment Options for Forex Reserves
Amidst the fall in the global interest rates caused by the pandemic, the Reserve Bank of India is looking at modifying its foreign exchange reserves. The apex bank’s current forex reserves stand at a record $560.63 billion. The central bank, which mostly invests in gold, sovereign debt and other risk-free deposits, has witnessed a fall in returns as the monetary policy loosened globally. U.S. two-year government bonds ended at 0.16% on November 02.
For the first time apart from investing in gold and buying-back of dollars, RBI is exploring the possibility to invest in AAA-rated corporate bonds, which offer better returns than sovereign credit.
Despite shrinkage in the country’s Gross Domestic Product in the current fiscal year to March 2021, the foreign investment has remained intact. Because of the stronger returns, the foreign investors have continued to invest in the Indian stock market. Foreign direct investment flows, especially towards reliance industries has attracted dollars in the country. In October, the foreign investors bought shares worth $2.52 billion, taking the total investment made in 2020 to the mark of $6.47 billion.
As per the traders, RBI has been mediating actively in the spot market to prevent appreciation of the rupee, in turn adding to the reserves. The central bank has also started increasing the investment in gold gradually.