RBI sold gold worth Rs 1 lakh crore to save rupees? What is the real reason behind this big claim?

The Reserve Bank of India (RBI) may have sold a part of its gold reserves in the market to protect its foreign currency assets from the economic shocks of the ongoing war in West Asia (Middle East). This estimate has been made on the basis of publicly available data.

According to a recent analysis by Bloomberg Economics, Abhishek Gupta, Senior India Economist of Bloomberg Economics, said in a report that the RBI probably sold gold worth about $ 12 billion (1.14 lakh crore) during the two weeks ending May 22 and bought foreign currency assets worth $ 7.5 billion with this amount.

Decline despite increase in duty

Abhishek Gupta emphasized in the report that recently the government had increased the import duty on gold, which should have increased the price of the central bank’s gold and dollar reserves. But on the contrary, there was a decline in the declared value of RBI’s gold reserves. This fall clearly indicates that RBI has sold gold.

trying to handle money

This alleged sale of gold shows how concerned policy makers are about the continuous outflow of capital and rising crude oil prices due to the Iran war and the closure of the Strait of Hormuz. Apart from this, there is huge pressure on the rupee due to increasing current account deficit, in view of which RBI is giving more importance to cash i.e. foreign currency than gold.

According to a previous report by Bloomberg News, Governor Sanjay Malhotra is seriously considering all the necessary options to handle the rupee like increasing interest rates and raising dollars from foreign investors. Some effect of these steps of RBI has also been seen in the foreign exchange market. Since the rupee reached its all-time low on May 20, it has performed better than other currencies in Asia. However, on Tuesday the rupee fell 0.2 percent and closed at 95.36.

Crude oil and inflation shock

Being the world’s third largest oil importer, India has to spend huge amount of foreign exchange due to expensive fuel and weak rupee due to Iran war. The government has also geared up to deal with this crisis and save the country’s economy. Under this, fuel prices have been increased and import duty on precious metals has been more than doubled. According to the report, as soon as the conditions become favourable, RBI will again start trying to strengthen its foreign exchange reserves.

Strictness on import of silver also

In this connection, the government on Tuesday made the rules related to import of silver more stringent. Now silver grains and powder have also been put in the ‘restricted’ category. This means that now traders will have to obtain a valid license or approval from the Directorate General of Foreign Trade (DGFT) to import silver of 99.9% purity in granules, powder or other forms.

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