India’s purchase of US treasury bonds goes up by 10% in Q1FY22

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India witnessed a 10% hike in the purchase of treasury bonds of the United States between March and June as per data released by the US treasury department. As per bond market analysts, apart from the Reserve Bank of India (RBI), even other banks have started utilising their surplus cash in buying sovereign papers overseas. This follows RBI’s move of relaxing the norms pertaining to such purchases.

The US treasury data shows that as of June India had treasury securities worth $220 billion, up from $200 billion in March and investments went up despite the rise of yields on the USA’s benchmark treasury bonds. The RBI is one of the largest investors in treasury bonds and now even local banks are following the suit and have started investing.

Move to manage the surplus liquidity

India’s foreign exchange reserve breached the $600 billion mark in the week ended June 4, according to the RBI data. In addition to that, even commercial banks were given the nod to invest in the sovereign papers of foreign countries. This move was taken by the RBI to ease the management of surplus liquidity in banks.

Rahul Bajoria, chief economist at Barclays Capital, told The Economic Times that it is more of a function of reserves growing rapidly in the given period than the consideration for yields. He added that as most of RBI’s investment is in the short end and in the safest of currencies, the US dollar is its currency for primary reserve.