RBI looks at foreign corporate bonds to generate higher yield

The central bank explored new allocations for its foreign currency assets to diversify its portfolio and also sought advice from outside investment experts.

The umbrella bank wants external investment managers to deal with some of the inflated foreign exchange reserves, as they did a few years ago.

The Reserve Bank of India (RBI) is thinking beyond gold and sovereign debt to investing in foreign corporate bonds, The Mint reported on Monday (June 14th).

The move aims to generate higher income from its $ 600 billion foreign exchange reserves, which currently represents one-fifth of the country’s gross domestic product (GDP). Last week India’s foreign exchange reserves broke the $ 600 billion mark for the first time.

The RBI has explored new allocations for its foreign exchange assets (FCA) with the aim of diversifying its portfolio and also examining the possibility of seeking advice from outside investment experts.

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The umbrella bank wants external investment managers to deal with some of the inflated foreign exchange reserves, as was the case a few years ago. Managers are expected to generate higher returns on reserves as global interest rates have fallen amid the pandemic.

The RBI’s annual report for 2021 also indicated that a few investment managers had approached the bank to manage its foreign exchange reserves.

Previously, global institutions and investment managers used to invest in instruments in accordance with RBI law, but this practice was stopped a few years ago. “We want to give a benchmark and see how we’ve performed against that. We were only giving $ 10 million in 1995. They were not allowed to invest in anything other than government bonds. But you can’t compare managing $ 10 million to $ 600 billion, ”a former RBI official told The Mint.

Read also : Inflation? Growth? There is a lot of noise around the ideal monetary policy goal

In the week ending June 4, the country’s reserves hit a record US $ 605.008 billion, aided by a rise in foreign currency holdings (FCA), a major component of global reserves.

Expressed in dollars, foreign currency assets include the effect of the appreciation or depreciation of non-US units such as the euro, the pound and the yen held in foreign exchange reserves.


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