India's RBI may have sold around $12bn in gold in the two weeks to May 22 to shore up foreign exchange reserves strained by high oil prices and a weakening rupee, Bloomberg Economics estimates.
Summary: Source: Times of India, citing Bloomberg Economics analysis
- Bloomberg Economics estimates the RBI sold approximately $12 billion in gold during the two weeks ending May 22, based on publicly available data, with senior economist Abhishek Gupta saying the pattern points to likely central bank bullion sales
- The RBI added around $7.5 billion to foreign currency assets over the same period; gold holdings fell despite higher import duties on the metal, which would ordinarily have lifted their dollar value
- India, the world's third-largest crude oil importer, is facing mounting foreign exchange pressure from elevated energy costs linked to the Hormuz disruption and a widening current account deficit
- Government measures to limit FX outflows have included fuel price increases and sharply higher import duties on precious metals
- As of end-March, the RBI held 880.52 metric tonnes of gold, with around 77% stored domestically, up from 66% six months earlier
- RBI Governor Sanjay Malhotra is reportedly evaluating further support measures including a potential rate rise and steps to attract additional dollar inflows from overseas investors; the rupee hit a record low on May 20 before partially recovering
India's central bank may have sold around $12 billion worth of gold over a two-week period in May to bolster foreign exchange reserves under pressure from the ongoing US-Iran conflict and its knock-on effects on energy costs and the rupee, according to an analysis by Bloomberg Economics.
The Reserve Bank of India held 880.52 metric tonnes of gold as of end-March, making it one of the larger sovereign bullion holders among emerging market central banks. Bloomberg Economics senior India economist Abhishek Gupta estimated that the RBI added approximately $7.5 billion to its foreign currency assets in the two weeks to May 22, while gold holdings fell. The decline occurred despite a government-imposed increase in import duties on precious metals, a measure that would ordinarily have raised the dollar value of the RBI's bullion stock. Gupta said that pattern was consistent with active gold sales by the central bank, though the transactions have not been officially confirmed.
India sits at the sharp end of the Hormuz disruption. As the world's third-largest crude oil importer, it is acutely exposed to the price spike that has followed the effective closure of the strait to most non-Iranian shipping, with oil prices having risen more than 50% since the conflict began. The combination of elevated import costs and capital outflows has widened the current account deficit and put sustained downward pressure on the rupee, which touched a record low on May 20 before recovering partially. On Tuesday the currency was trading around 0.2% weaker at 95.17 to the dollar.
New Delhi has responded with a range of measures aimed at limiting foreign exchange outflows, including fuel price increases and higher import duties on precious metals. RBI Governor Sanjay Malhotra is said to be evaluating additional steps, including a possible interest rate increase and mechanisms to attract greater dollar inflows from overseas Indian investors.
The gold repatriation trend is a notable subplot. The share of RBI gold held domestically rose to 77% by end-March from 66% six months earlier, reflecting a broader preference among emerging market central banks for keeping reserves within reach after Western nations froze Russian assets following the Ukraine invasion. If the latest episode does involve gold sales, it suggests that preference now has limits when a genuine liquidity crunch arrives.
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An RBI move to liquidate gold at this scale would signal that the Hormuz-driven oil shock is creating genuine balance of payments stress in one of the world's largest crude importers, with implications beyond India's borders. Sustained rupee weakness and capital outflows from a major emerging market economy add a secondary demand-side risk to global oil markets: a materially weaker rupee inflates the domestic cost of imports further, potentially weighing on Indian crude demand at the margin. The RBI's posture also adds to a broader emerging-market narrative of central banks being forced into reactive reserve management by the conflict's economic spillovers.
