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The
RBI's foreign exchange reserves stand at a record $560.63
billion. The central bank, which mostly invests in gold,
sovereign debt and other risk-free deposits, has seen returns
fall as monetary policy loosened globally. U.S. two-year
government bonds ended at 0.16% on Nov. 2. <US2YT=RR>
As a result, the RBI is likely to increase its gold investments,
as well buying dollars and exploring investing in AAA-rated
corporate bonds for the first time, said the sources, who
declined to be named due to the sensitivity of the issue.
"The RBI is likely to continue to buy dollars. The problem is
the dollar deployment and getting good returns," one of the
officials said.
The official added that the RBI was studying the possibility of
investing in AAA-rated corporate dollar bonds, which offer
better returns than sovereign credit. Such investments have not
been made in the past, so the central bank would move carefully.
Foreign investors have continued to pour money into the Indian
stock market because of its stronger returns. Foreign direct
investment flows, particularly towards Reliance Industries <RELI.NS>,
have pulled in dollars into the country.
Traders say the RBI has been intervening heavily in the spot
market to prevent appreciation of the rupee, in turn adding to
its reserves.
"The government is comfortable with current rupee levels. It
needs to be competitive to help provide an export boost," the
official said.
A second source said dollar buying intervention will continue as
both the RBI and the government are comfortable with a 73-75 per
dollar range on the local currency.
Despite a contraction in gross domestic product expected in the
current fiscal year to March 2021, foreign flows have remained
healthy.
Foreign investors bought shares worth $2.52 billion in October,
taking total investment in 2020 to $6.47 billion. Though FIIs
are net sellers of bonds worth $13.98 billion in 2020 so far,
they bought a net $459.30 million in October.
The rupee <INR=IN> has fallen for three straight months to
October. It is one of the worst-performing Asian currencies in
2020.
"Our 10-year yield is still at around 6% compared to near zero
and negative interest rates globally, so we will see inflows
continuing and RBI will keep buying dollars to prevent rupee
appreciation," the second source said.
The RBI has already started increasing its investment in gold
gradually, the sources said.
Gold reserves stand at $36.86 billion as on Oct. 23 compared
with $30.89 billion at the end of the last fiscal year in March,
though a large part of this increase can also be attributed to
valuation changes.
(Reporting by Swati Bhat in Mumbai and Aftab Ahmed in New Delhi;
editing by Alasdair Pal, Larry King)
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