Financial Daily from THE HINDU group of publications
Thursday, Apr 29, 2004
Financial Daily from THE HINDU group of publications Thursday, Apr 29, 2004 |
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Money & Banking
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Govt Bonds RBI cuts down on US T-bonds C. Shivkumar
Bangalore , April 28 INDIAN institutions and the Reserve Bank of India (RBI) have reduced their holdings of US government securities in anticipation of hardening of dollar interest rates. In February this year, RBI and domestic institutions sold at least $2.5 billion worth of US treasuries. Besides RBI, the other agencies holding US treasuries include General Insurance Corporation (GIC) and foreign branches of domestic banks or subsidiaries. RBI has invested external reserves in US and other foreign government securities, deposits with foreign banks and multilateral institutions such as the Bank for International Settlements and the European Central bank. Similarly, GIC has invested in US government securities ever since it emerged as a global reinsurer. GIC's investments are made out of premium accretions from international customers. The sale of the securities was evident from the latest figures released by the US Treasury Department, which indicated that India's holdings in US government securities declined to $12 billion in February 2004 as against $14.4 billion in January and $15.5 billion in December 2003. This was despite the large accretions to foreign exchange reserves during the period. However, the reduction was mostly in dated securities. In addition to dated securities, RBI also invests in short-dated papers such as US and UK Treasury bills. Banking sources said the liquidation was in line with expectations of hardening of the dollar interest rates in the coming months. The sale of the securities coincided with the fall in 10-year US gilt yields below 4 per cent in January and February 2004. Indications are that the RBI and domestic institutions have been selling since December last year itself. RBI has remained an aggressive treasury operator in international markets and has booked profits on US Treasury investments in the past as part of its management of external reserves. Besides, the sale was also intended to cut potential losses due to depreciation of investments in the event of dollar interest rates rising in the coming months. Bankers said the reduction in investments of US government securities was in line with a caution sent out to all domestic banks in the country, warning them of a potential hardening of interest rates. The bankers also said most of the cash balances by the RBI and domestic institutions were also being moved from dollar denominations to other currencies, including the euro and the pound sterling. This was also evident from the reduced banking liabilities by US banks to Indian institutions. The liabilities include cash balances, correspondent accounts and external deposit accounts by Indian corporates and insurance companies. These balances in February were down to $11.5 billion, down from about $13.5 billion in January, according to the US Treasury Department's figures. Traders said some of the cash balances were switched to other currencies such as the pound sterling, partly to improve the interest earnings. Interest rates on pound sterling are higher by at least 0.5 per cent to 1 per cent higher than dollar rates. Besides, there was also the advantage of the sterling appreciating against the dollar, increasing the returns.
More Stories on : Govt Bonds | Overseas Investments | RBI & Other Central Banks
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