RBI purchased 8.46 tonnes of gold for first time in nine years. Here are the reasons

Last Updated: Tue, Sep 04, 2018 11:07 hrs
Gold Shop (IANS photo)

The Reserve Bank of India (RBI) has bought 8.46 tonnes of gold for financial year 2017-18. This, according to an RBI report.

The last time, the central bank had procured gold was way back in 2009. Back then, the RBI had procured 200 tonnes of Gold from the International Monetary Fund.

According to the RBI's latest annual report for 2017-18, the central bank held 566.23 tonnes of gold, as on June 30, 2018.

In the last fiscal year, the RBI report says, it held 557.77 tonnes of the yellow metal.

"The increase is on account of addition of 8.46 tonne of gold during the year," said the report.

Of the 566.23 tonne of gold reserves, 292.30 tonne is held as backing for notes and is shown as an asset of the Issue Department, and the balance 273.93 tonne is treated as an asset of the Banking Department.

With the new holdings, the value of gold held as asset of Banking Department rose by 11.12% to Rs 696.74 billion as on June 30, 2018, from Rs 627.02 billion as on June 30, 2017.

This increase was primarily on account of depreciation of rupee as against the dollar and the addition of 8.44 tonne of gold during the year, RBI report said.

Why the RBI increased it's holdings:

Although the report does not detail the reasons for the apex bank to increase its holdings. The following could be some reasons:

Analysts say one of the reasons the RBI purchases Gold is to shore up gold holdings.

India built its gold reserves to over 20% of foreign reserves in 1994 after a balance of payments crisis in 1991. But the proportion of gold has since fallen significantly as total reserves swelled.

Some economists were quoted as saying that the move in 2009 was aimed at diversifying reserves holdings which focuses on the US dollar.

There is nothing confirmed on why the RBI purchased Gold. There is also a speculation that this could be linked to de-focus it's reserves from the greenback. 

Will this impact retail price?

Domestic bullion prices are likely to be impacted by RBI's buying.

A 2009 news-report quotes an official from the apex bank as explaining the buying decision in 2009. The official explains, "This was done as part of the RBI’s foreign exchange reserves management operations."

But, with festive season kicking in, there is no confirmation that RBI's gold purchase will not have any immediate impact on demand.

Retail buyers have conceded that prices are still at a premium, with the Rupee weakness kicking in, there might be various factors responsible for Gold price.

Analysts in 2009 were also of the opinion that the RBI's move was expected to raise the psychological price level at which Indians buy gold. "This could help raise the demand for gold in the medium term," said a dealer who did not wish to be identified.

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