Saturday, August 24, 2013

Higher reserve suggests RBI anticipated rupee fall

The Reserve Bank of India (RBI) beefed up its contingency reserve in 2012-13 by 13% during 2012-13 to R2.22 lakh crore, which suggests it had perhaps anticipated the sharp fall in the exchange rate.

The contingency reserve and asset development reserve together do not exceed 12% of the central bank\'s total assets. In 2012-13, the reserves were 10.1% of the total assets of the RBI. The share of the reserves in the total assets was the highest at 11.9% in 2008-09 following the global financial crisis.

RBI maintains a contingency reserve to meet unexpected expenses arising out of interventions in the bond and exchange rate market. It maintains an asset development reserve to meet the needs of internal capital expenditure. Between July 2012 and June 2013, the rupee had depreciated a massive 14%. The RBI follows a July-June financial year.

Meanwhile, the rupee\'s fall has brought some gains to the RBI as the value of its foreign exchange assets gained in rupee terms. As on June 30, the RBI\'s forex assets were at R15.24 lakh crore, up from R14.49 lakh crore a year ago.

However, due to the rise in US treasury yields, the central bank had to draw down Rs 97,000 crore from its investment revaluation account.

Gold reserves were valued at R1.29 lakh crore, down from R1.45 lakh crore, mainly due to fall in global gold prices. As on June 30, RB held 557.75 tonnes of gold to back the country\'s currency.

The year 2012-13 also saw RBI transfer a historically high surplus amount to the government due to an increase in interest income after the central bank beefed up government bond holdings through OMOs. RBI\'s government bonds pool rose to R6.74 lakh crore from R5.7 lakh crore, boosting bank\'s interest income by 48%.

Further, due to the fall in government bonds yields during June, RBI had benefited as the depreciation of the securities reduced by 61%. The 10-year bond yield slipped to 7.5% by end of June from 8.2% a year ago.
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