V R Associates, Chartered Accountants

RBI steps up gold buying amid US dollar volatility

The Reserve Bank of India (RBI) has stepped up gold purchases to help diversify its foreign exchange reserves base amid US dollar volatility. The rise in the value of outstanding gold reserves made up more than four-fifths of the near $3-billion increase in forex reserves at a record $ 648.5 billion as of April 5. In January-February this year. The RBI bought 0.43 million troy ounce, or close to 13.3 tonnes of gold, from the market. That is over 80% of the total gold purchases of 0.52 million troy ounce in 2023 by the central bank. "We are building up gold reserves, the data is released from time-to-time" said RBI governor Shaktikanta Das at the post policy media conference on April 5. "All aspects while building up the reserves are assessed and then we make a decision." The central bank's stated objective of holding gold in reserves is mainly to diversify its foreign currency assets base, as a hedge against inflation and foreign currency risks. The Reserve Bank of India has started to accumulate gold regularly from the market since December 2017. Its stock of gold as of end February, 2024 is 26.26 million troy ounce, up from $17.94 million troy ounce in December 2017.

Disclaimer: The information provided in this post is derived from Economic Times, dated April 15th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

🌟 Exciting Times Ahead for Banking Sector! 🌟

As the Reserve Bank of India (RBI) carefully evaluates risks amidst the dynamic landscape of 24x7 banking transactions, banks are advocating for flexibility in reserve norms. With the recent turbulence witnessed in US regional banks, the need for adaptability is more pressing than ever.

Sources reveal that banks have petitioned the RBI for the inclusion of Cash Reserve Ratio (CRR) funds as High Quality Liquid Assets (HQLA) for Liquidity Coverage Ratio (LCR) computation. This strategic move could provide banks with the necessary leeway to meet potential surges in LCR requirements, especially in light of possible alterations in deposit classifications by the RBI.

While the RBI mulls over modifications to enhance liquidity risk management, banks are diligently preparing for potential shifts in deposit outflow dynamics. The possibility of increased outflow factors underscores the importance of prudent fund allocation amidst burgeoning loan demands and the imperative to address instant banking channel contingencies.

In this dynamic environment, Indian banks are navigating through mandates of CRR and Statutory Liquidity Ratio (SLR), recognizing the symbiotic relationship between these ratios and the Liquidity Coverage Ratio. Notably, the recent surge in volume and value within the NEFT and RTGS systems underscores the evolving nature of banking transactions, necessitating agile responses from financial institutions.

As we stride towards a future marked by continuous evolution in banking operations, collaboration between regulatory bodies and banks remains paramount. Stay tuned as we navigate these transformative times together!

Disclaimer: The information provided in this post is derived from Economic Times, dated April 10th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.

Climate change poses challenges for monetary policy, says RBI report

Mumbai: Frequent weather shocks caused by climate change pose challenges for the monetary policy as well as downside risks to economic growth, a Reserve Bank report said. Global average temperatures are on a rise, with accompanying increase in extreme weather events (EWE), and the economic and social impact of global warming is becoming increasingly evident, said RBI's Monetary Policy Report - April 2024. The report said that climate change has increased the frequency and ferocity of weather shocks, posing challenges for monetary policy. It said there are different channels through which climate change can affect monetary policy. Climate change directly impacts inflation through adverse weather events affecting agricultural production and global supply chains, climate change could impact the natural rate of interest, and the after-effects of climate change might weaken the transmission of monetary policy actions to financing conditions faced by households and firms.

"For these reasons, central banks are increasingly incorporating climate risks explicitly into their modelling frameworks," the report said. In the absence of any climate mitigation policies, the long-term output will be lower by around 9 per cent by 2050 vis-a-vis a no climate change scenario with full pass-through of the physical risks of climate change to the economy. "Lower productivity may lead to a fall in the natural rate of interest. Frequent shocks to inflation will, however, necessitate tighter monetary policy even with a lower natural rate of interest," the RBI said. The report also stressed that frequent weather-related disturbances due to climate change pose downside risks to the baseline growth path.

Disclaimer: The information provided in this post is derived from Business Standard, dated April 9th, 2024. Readers are advised to exercise their own discretion and verify the information independently. Reliance on this information is at the reader's own risk.