Mumbai, Jan 10 (IANS ) : India's foreign exchange reserves fell by $5.7 billion to $634.59 billion for the week ended January 3, data released by the Reserve Bank of India (RBI) on Friday showed.
However, gold reserves, which form part of the foreign exchange kitty, increased by $824 million to $67.1 billion during the week, according to the figures.
The RBI bought another 8 tonnes of gold in November 2024, as Central banks around the world continued their buying spree with a collective purchase of 53 tonnes of the precious metal during the month, according to the latest World Gold Council (WGC) report.
The RBI has, like other central banks, been buying gold as a safe-haven asset. The strategy of holding gold is primarily aimed at hedging against inflation, and reducing foreign currency risks, especially in times of uncertainty triggered by geopolitical tensions.
With the addition of 8 tonnes of gold to its reserves in November, the RBI has increased its buying to 73 tonnes in the first 11 months of 2024 and its total gold holdings to 876 tonnes, maintaining its position as the second largest buyer during the year after Poland.
"Gold is up 1.3 per cent and Silver is up more than 3 per cent so far in the weak, despite a stronger U.S. dollar in the overseas market. The bullions have remained supported by safe-haven buying ahead of January 20 - the day Donald Trump starts his Presidency and focus will remain on his policy layout, while additional support is seen from fresh buying among ETF investors,” said Pranav Mer, Vice President at JM Financial Services Ltd.
The RBI uses the forex reserves to control the volatility in the rupee which results as hot money from the stock market flows out when foreign investors sell shares.
Meanwhile, Reserve Bank Deputy Governor Rabi Sankar said at a media event on Thursday that the RBI is well equipped to handle excessive exchange rate volatility that could result as a fallout of the Trump presidency. He also ruled out allowing oversight rights of the Indian bond-clearing platform to the European authorities, comparing such a provision to a sovereignty breach.
The RBI releases dollars in the market in case the rupee falls sharply to prevent it from going into free fall. This helps to maintain stability in the Indian currency. Robust foreign exchange reserves help to make these operations easier and strengthen the rupee.
Courtesy Media Group: IANS