MUMBAI — 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.
