India’s US Treasury securities holding rises 50% on year in Oct

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Mumbai | Published: December 17, 2015 12:15:11 AM

In terms of year-on-year rise, India is second to Spain that witnessed surge of over 60%

The Reserve Bank of India (RBI) has shored up the country’s forex reserves in the last one year and as a result India’s holdings of US Treasury securities rose more than 50% in October compared to the year-ago period.

Data by the US Treasury department shows that India’s holdings of US Treasuries in October stood at $116.60 billion, a 50.45% surge compared to $77.5 billion in October 2014. Compared to September, holdings rose by $3.1 billion.

In terms of the increase in holdings on a year-on-year basis, India is only second to Spain that has seen a surge of 60.18%. India stands 13th in the list in terms of holdings of US Treasuries. China tops the list at $1,254.80 billion, followed by Japan, which had $1,149.20 billion of holdings as of end October.

Among the emerging market countries, Brazil and Taiwan hold $255 billion and $178.10 billion of US Treasuries—higher than India’s holdings.

Soumyajit Niyogi, an interest-rate strategist with SBI-DFHI, believes that with the possibility of the dollar strengthening post the rate hike by Fed, the central bank seems to have parked more funds in dollar assets.

“With the expectation of a Fed rate normalisation backed by gradual recovery and a possible strengthening of the dollar, the central bank seems to have parked more in dollar assets or US Treasury securities. This might be the reason why we are seeing a rise in the Indian holdings of US Treasury securities,” Niyogi said.

Experts also point out that the RBI has been shoring up  foreign exchange reserves and has been buying dollars over the past year or so to offset the depletion it had witnessed in 2013.

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Following the currency contagion in 2013 triggered by the US Federal Reserve’s decision to taper its bond purchases, India’s forex reserves had fallen to a three-year low of $275 billion because of the central bank’s intervention to support the falling currency. By August 2013, the Indian currency had hit an all-time low of 68.85 to the dollar.

Since then, the RBI has been accumulating dollars which is evident from a steep upward curve between 2014 and the current year in terms of forex reserves.

“Our forex reserves had depleted because of the intervention post the 2013 currency contagion. So, it had to be brought back to a level which has to be commensurate with the economy which is close to 15% of the GDP,” says Anindya Banerjee, AVP, forex and interest rate research at Kotak Securities.

As of October 30, 2014, India’s foreign exchange reserves stood at $315.91 billion. It increased by $37.72 billion to $353.63 billion as on October 30 this year. The figure had touched a life-time high of $355.46 billion in the week ended June 19.

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