India’s exposure to US securities has increased by more than 10pc in the last 3 months

India’s exposure to US securities has increased by more than 10pc in the last 3 months

In the three months ending in June, India’s holdings of US government securities increased by more than USD 20 billion to USD 220.2 billion, owing to surging foreign exchange reserves. When compared to June of last year, when the coronavirus pandemic crippled most economic operations, India’s exposure to US Treasury securities increased by approximately USD 40 billion.

According to the most recent data from the US Treasury Department, India is the 11th largest holder of these assets, withholdings of USD 220.2 billion at the end of June this year, while Japan has the greatest exposure at just over USD 1.277 trillion.

Since March, when it was at USD 200 billion, India has steadily increased its government securities exposure. The stockpile increased to USD 208.7 billion in April, then to USD 215.8 billion by the end of May.

The country’s exposure in February was USD 204.4 billion, down from USD 211.6 billion in January. At the end of June 2020, the stake was valued at USD 182.7 billion.

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The rise in India’s exposure to US treasuries, according to Unmesh Kulkarni, Managing Director Senior Advisor at wealth management firm Julius Baer India, must be viewed in the context of the country’s continuing build-up of foreign reserves.

“US Treasury yields have been on the decline since May’21, after bottoming out in the middle of last year and rising steadily thereafter, while RBI has been gradually increasing its exposure since April’21,” he told PTI.

In the week ending August 13, India’s forex reserves were USD 619.365 billion, down from a record high of USD 621.464 billion the previous reporting week.

Domestic liquidity in the Indian money markets has been high, according to Kulkarni, and the RBI has been attempting to normalise the situation through variable-rate reverse repo auctions.

“Growing foreign exchange reserves boost to local rupee liquidity, thus it makes sense for RBI to buy foreign assets to drain some of the excess liquidity.”

 

“Among forex sovereign assets, the US dollar is generally the RBI’s preferred currency; contrary to market expectations, the US dollar has remained stable in the current calendar year so far, appreciating 4.1 per cent (Dollar Index) and 1.8 per cent against the INR,” he said, adding that Indian commercial banks have also begun deploying some.

India’s forex reserves have reached a new lifetime high of $621.5 billion.

Japan is the largest holder of US Treasury securities, followed by China, with a combined exposure of USD 1.061 trillion at the end of June.

According to the data, the UK came in third with USD 452.9 billion in holdings, followed by Ireland (USD 322.9 billion), Luxembourg (USD 301.8 billion), Switzerland (USD 270.1 billion), Brazil (USD 249 billion), Cayman Islands (USD 244.8 billion), Taiwan (USD 239.4 billion), and Belgium (USD 228.5 billion).

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