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May 24, 2024

How US Treasuries Boosted RBI’s Record Rs 2.1 Trillion Surplus to the Indian Government

The Reserve Bank of India (RBI) has made headlines by transferring a record surplus of Rs 2.11 trillion to the Indian government for the fiscal year 2023-24 (FY24). This unprecedented surplus is the result of a strategic combination of factors, including significant investments in US Treasury bonds and profitable dollar sales.

One of the key drivers behind this impressive surplus is the RBI’s robust dollar purchases throughout FY24. These purchases were facilitated by strong capital inflows, which are a testament to the overall health and attractiveness of the Indian economy. As capital inflows surged, the RBI capitalized on the opportunity to strengthen its foreign exchange reserves.

The dollars accumulated through these purchases were strategically invested in US Treasury securities. This move proved to be highly beneficial for the RBI, thanks to the prevailing economic conditions in the United States. The US Federal Reserve’s monetary policy tightening led to an increase in yields on these Treasury securities, reflecting the higher-for-longer interest rate stance adopted by the Fed. As a result, the RBI reaped substantial interest income from its investments in these foreign assets.

Economists have highlighted that the rise in US Treasury yields was a significant factor contributing to the RBI’s record surplus. The higher yields not only increased the returns on the RBI’s investments but also ensured a steady stream of income, bolstering the central bank’s financial position.

The strategic sale of dollars also played a crucial role in enhancing the RBI’s surplus. By timing these sales to coincide with favorable market conditions, the RBI was able to secure healthy profits. These profits were then transferred to the government, adding to the overall surplus.

The RBI’s ability to generate such a significant surplus is indicative of its adept management of foreign exchange reserves and its strategic investment decisions. This record transfer is expected to provide a substantial boost to the Indian government’s finances, enabling it to address various economic challenges and fund developmental projects.

In summary, the RBI’s record surplus of Rs 2.11 trillion for FY24 can be attributed to a combination of factors, including robust dollar purchases, strategic investments in US Treasury securities, and profitable dollar sales. The central bank’s proactive approach and strategic financial management have not only strengthened its own financial position but also provided a significant financial boost to the Indian government.

Jhumpa Lahiri

Jhumpa Lahiri

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