RBI to continue forex reserves diversification

RBI to continue forex reserves diversification

New Delhi: The RBI will continue with its strategy of diversifying its forex reserves, a central banker said on Friday, adding, investors may not find it easy to move away from US debt investments.

Lingering concerns about the health of the US economy and the fate of the dollar, the world’s premier reserve currency, is making economies across the world to diversify their forex reserves and pare their US debt holdings.

“Yes we diversify always. That is a strategy that remains," KC Chakrabarty, a deputy governor at the Reserve Bank of India said. The global economic situation was becoming more complex and volatile, he added.

World stocks sank for an eighth straight session on Friday, wiping $2.5 trillion off company values on the week, as concern ballooned over the slowing global economy and the spread of debt anguish into Italy and Spain.

There was widespread demand for policymakers to beef up plans to tackle the euro zone’s crisis and prevent the US economy in particular from sliding back into recession.

“People who have lent to the US, they cannot desert so easily. That, we must understand, is the reality," Chakrabarty said.

India’s holdings in the US treasuries at the end of May 2011 stood at $41 billion, down from $42.1 billion, data on the US treasury website showed.

At a separate event, another deputy governor at the central bank, Subir Gokarn, who is in charge of monetary policy said on Friday that the recent softening trend in global commodity prices and emergence of fears over global recession could have some impact on the bank’s policy stance in September.

The global developments come at a time when India is battling high headline inflation, which quickened to 9.44% in June, and Chakrabarty said the current level of inflation was not acceptable.