Amid speculations, that the Reserve Bank of India (RBI) may buy more gold from the IMF, the Prime minister’s Economic Advisory Committee (PMEAC) has said the central bank should wait for some more time before going for another round of purchases.
“Having bought 200 tonnes of gold, they (RBI) might wait. I think there is no particular hurry to buy more. At the moment, I think they have made a substantial increase to the total quantity of gold they have,” PMEAC Chairman C Rangarajan said.
When asked if RBI bought gold to shore up the value of its reserves in the context of falling dollar value, Rangarajan said, “not necessarily”.
The former RBI Governor said the total amount invested in gold was very small, which did not make a sea change in relation to its total reserves.
“...They (RBI) might have already shifted in favour of other currencies, but the significant proportion of total reserves will still be kept in the dollar,” he added.
He said RBI had readjusted in some way the proportion of gold in its total reserves because the quantity of gold had remained constant, while forex reserves had increased.
The 200-tonnes gold buy by RBI constituted only 2.35 per cent of its total forex reserves at $284.3 billion at that point of time and raised the gold reserves with RBI to 557 tonnes.
Rangarajan said: “The foreign exchange reserves of RBI have been increasing and therefore the proportion of gold in the total reserves has been coming down. So, to some extent, they have reversed that by this gold purchase.”
When asked how much reserves, RBI should maintain in the form of gold, Rangarajan said: “There is no hard and fast rule, but some proportion of the reserves being maintained in the form of gold is good.”
RBI Deputy Governor Subir Gokarn evaded a direct reply, saying he is new in his job, when questioned about the rationale behind gold purchase.
Clarifying he was not speaking as RBI deputy governor, Gokarn said: “On the broader economic perspective, the supply of gold is extremely skewed and the country which doesn’t have its own capital supply of gold and which is dependent on trading partners or cross-border transactions to get its supply of gold, runs a significant risk by making gold the basis of its monetary system.”
There is speculation that RBI may buy more gold, after purchasing 200 tonnes in the month of November. RBI officials remained tight-lipped about the purchase.
India had to pledge around 68 tonnes of gold with the Bank of England and Union Bank of Switzerland in the early 1990s to tide over a balance of payments crisis.
Source : Business Standard