The Hindu Business Line : Indian holdings in US treasuries down at $14 b

According to data released by the US Treasury Department, Indian holdings were down to $14 billion. In September this year, holdings of US treasuries were $14.5 billion. The holdings were $2 billion lower than the corresponding period of the previous year, when it was 16 billion. Besides the RBI, other institutions holding foreign government securities include the General Insurance Corporation, foreign subsidiaries of Indian banks and foreign branches of domestic banks.

However, this drop was partly on account of the reduced exposure in US securities, bankers said. The data showed that currently only 9.5 per cent of the country's foreign exchange reserves were invested in US Government term securities. In October 2004, at least 15 per cent of the foreign exchange reserves were in invested in US treasuries. This reduction has been progressive over the last one year. Bankers said that the reduction was triggered by concerns of further depreciation in the US securities in view of the continuous hikes in US repo rates. US repo rates were last hiked on December 13 to 4.5 per cent.

Bankers said that instead, the continuous treasury management undertaken by the RBI has resulted in a shift in investments of foreign currency reserves to European, Asian central banks, multilateral institutions and cash balances with the Bank for International Settlements. The shifts to other institutions were made partly to offset any large losses in US treasury holdings due to currency depreciation along with a fall in the value of the securities.

Bankers said that the shift from dollar-denominated investments to other currencies was also evident from the reduction in gross US banking liabilities to India. In October this year, the outstanding liabilities were $10.917 billion, down from $11.561 billion in September and $11.623 billion during the corresponding period of 2004. The shift to the euro, sterling and yen has generated profits for the RBI, the bankers said. This was because the shift was made in October when the euro and sterling were weakening against the dollar, they added.

Besides, bankers said some selling of the securities had also taken place during September and October by bankers to meet the foreign currency demand of Indian oil companies. During the period, oil prices have remained above $60 a barrel.

Moreover, some churning in investments had also taken place to offset the impact of depreciation. A large volume of the US securities investments was mostly held in the form of short-term securities and short-dated treasury bills. This is unlike the case of China, Japan or Korea, where the bulk of the investments were held in middle and long-dated securities. Consequently, these countries were more vulnerable to US interest rate volatility.