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Inflation should be kept low, reforms required for growth: RBI

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RBI Governor Raghuram Rajan
RBI Governor Raghuram Rajan credit: www.thehindu,com

By NewsGram Staff Writer

Mumbai: Reserve Bank of India (RBI) Governor Raghuram Rajan on Friday said inflation should be kept low not only now but also in the future, adding that reforms are needed for sustainable growth.

Rajan, at an event in Mumbai said that keeping inflation down and implementing reforms are needed for maintaining sustainable growth.

There are expectations that the RBI would reduce interest rates at its next monetary policy review later this month.

This has been reinforced with the US Federal Reserve deciding to hold its interest rates much against the earlier expectation they would be hiked.

On the US Federal Reserve’s decision, Rajan said this could be due to concerns about the American economy. He said the US may be waiting for more information before deciding on a rate hike.

Rajan also said the banks should quickly balance their books, adding there was need for a bankruptcy code to enable the lenders better handle their loan accounts.

With Inputs from IANS

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Global Monetary Policy Might Compel RBI To Augment Its Gold Reserves

"There are concerns that this huge debt might lead to a reset of the dollar which would have major consequences for central banks holding reserves in dollar. Therefore, gold purchase by central banks is by way of diversification"

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However, even 29 years after that fateful incident, gold is still revered as a safe haven for the country's central bank. Pixabay

Rising trade protectionist measures along with threat of a currency shock and dovish global monetary policy might compel India’s central bank to augment its gold reserves.

Additionally, the need to have a diversified foreign currency and asset reserve will keep the Reserve Bank’s gold deposits glittering, opined economists and industry watchers.

The trend, they said, has led the country’s central bank to increase its gold reserves to 608.8 tonnes.

As per World Gold Council, India’s central bank holds the 11th largest gold reserves in the world as of May, in comparison, the US reserves are pegged at 8,133.50 tonnes, Germany (3,369.70), IMF (2,814), Italy (2,451.80), France (2,436) and Russia (2,168.3).

“Ongoing trade tensions and economic sluggishness remain the driving factors behind this continued diversification through gold,” said Alistair Hewitt, Director of Market Intelligence at the World Gold Council on the trend of gross purchases by four central banks.

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“Gold’s role as a safe haven asset and an effective portfolio diversifier makes it a good medium-term investment choice,” said Madhavi Arora, Economist, Edelweiss Securities’ FX and Rates desk. Pixabay

India’s forex reserves comprise Foreign Currency Assets (FCAs), gold reserves, Special Drawing Rights (SDRs) and India’s reserve position with the International Monetary Fund (IMF).

Latest data had shown an increase of $4.368 billion in overall reserve during the week ended April 26 to $418.515 billion.

According to Anindya Banerjee, Deputy Vice President for Currency and Interest Rates with Kotak Securities: “RBI is maintaining a share of 5-6 per cent of its total reserves in gold. As the reserves rose, RBI has increased the amount of gold it is holding, without increasing the share.”

The RBI’s weekly data had showed that the value of the country’s gold reserves was stagnant at $23.303 billion.

In the view of Tapan Patel, senior analyst, commodities, HDFC Securities, higher gold reserves guarantees asset diversification in terms of de-dollarisation to counter the volatile currency fluctuations amid strong foreign inflows.

“The global economic uncertainties pertaining to trade war, dovish US FED and lower interest rates has prompted India’s RBI to increase gold buying diverting to safer assets. However, we expect RBI will try to keep gold reserves steady around 6.50% of overall reserves kitty and maintain the ratio of foreign currency and gold reserves.”

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Additionally, the need to have a diversified foreign currency and asset reserve will keep the Reserve Bank’s gold deposits glittering, opined economists and industry watchers. Pixabay

Lately, concerns have been raised over the impact of US debt level of around $22 trillion on the greenback.

“There are concerns that this huge debt might lead to a reset of the dollar which would have major consequences for central banks holding reserves in dollar. Therefore, gold purchase by central banks is by way of diversification,” V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

On a nostalgic note, for gold’s value as the country’s ultimate saviour, Indians still remember the time when the government had to pledge India’s gold reserves with IMF in 1990-91

However, even 29 years after that fateful incident, gold is still revered as a safe haven for the country’s central bank.

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“Gold’s role as a safe haven asset and an effective portfolio diversifier makes it a good medium-term investment choice,” said Madhavi Arora, Economist, Edelweiss Securities’ FX and Rates desk.

“Besides, gold’s ability to improve risk-adjusted returns and its use as valuable collateral are also factors that makes it relevant for central bankers to invest and diversify in gold.” (IANS)