Saudi Arabia, Brazil, and India were the top three countries to shed the US assets in March

The Reserve Bank of India (RBI) reduced its US treasury holdings by $21 billion in March, even as it is silently buying a huge amount of bonds from the secondary market.

The data released by the US Treasury Department shows India held $156.5 billion of US treasury papers in March, down from $177.5 billion in February. In March 2019, India held $152 billion of US treasury assets.

US treasury holdings typically rise and fall with a country’s foreign exchange reserves. By the end of March 2020, India’s foreign exchange reserves were $474.66 billion; in February, they were about $481.54 billion. In March 2019, the reserves were about $412 billion.

In the calendar year so far, foreign investors have liquidated $18.24 billion from the equities and debt market. Most of the outflow, $15.7 billion, happened in March.

Saudi Arabia, Brazil, and India were the top three countries to shed the US assets in March.

Overall, foreign countries sold $299.35 billion in US treasuries, a record high, compared with the buying of $4.88 billion in the previous month.

The domestic bond purchases are also necessitated to help the RBI keep its balance sheet size protected, as the local bonds compensate for the US treasury papers to keep the asset side intact. It has an added advantage: Such bond purchases keep the yields low in the domestic market.

“Most of the central banks are using foreign exchange reserves to meet sudden volatility in the Balance of Payments account, and simultaneously buying domestic bonds to keep domestic liquidity at ease,” said Soumyajit Niyogi, associate director at India Ratings and Research.

Amid the outflow of funds, and in the face of heavy borrowing programme by the government, the central bank has been silently buying a large quantity of bonds.

Since March, the central bank has bought a net of Rs 1.63 trillion in domestic bonds from the secondary market, as an anonymous participant, data shows. But the bonds are not bought during the auction, which would be a direct monetisation of the government deficit.

Courtesy: Business Standard