The proportion of India’s foreign currency assets parked in securities declined in the first half of this fiscal (FY13) in favour of deposits with other central banks, the Bank for International Settlements and International Monetary Fund. The securities, which were primarily bonds issued by the governments of developed economies such as the US, UK and Japan, comprised 53.9 per cent of India’s foreign currency assets portfolio as of end-September 2012, down from 59.1 per cent on March 31, 2012.

The RBI increased the quantum of deposits with other central banks, the BIS and IMF to 43.9 per cent of foreign currency asset holdings from 38.6 per cent at the end of the 2011-12 financial year. Deposits with foreign commercial banks and funds placed with external asset managers (EAMs) were trimmed marginally to 2.2 per cent.

The portfolio reshuffle comes in the wake of a significant reallocation of foreign currency assets in the April-September half of FY12, a year which saw the country’s foreign currency asset holdings — which form a part of the nation’s overall foreign reserves — dip by 5.2 per cent.

The primary motivation behind increasing the proportion of investments in securities in 2011-12 appears to have been the safety of the instruments in protecting the country’s valuable foreign currency assets, particularly in the face of sharp depreciation of most major currencies against the US dollar.

But in the first half of 2012-13, the RBI pruned its exposure to securities in favour of other investment avenues, taking advantage of the improvement in global economic conditions. Nevertheless, the proportion of securities in India’s foreign currency assets portfolio remains higher than in the past three years.

arvind.jayaram@thehindu.co.in

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