New Delhi: The Reserve Bank of India may have sold gold worth approximately $12 billion in the two weeks ending May 22 to support foreign exchange reserves from the economic fallout of the surging US-Iran conflict, according to Bloomberg Economics.
India, the world’s third-largest crude oil importer, faces intensifying pressure on its forex resources as West Asia tensions drive up energy costs and weaken the rupee. To counter external shocks, the government has raised fuel prices and sharply hiked import duties on precious metals.
RBI reduces gold holdings
Bloomberg Economics analysis of publicly available data suggests the RBI sold gold worth around $12 billion, even as it added $7.5 billion to foreign currency assets. Senior India Economist Abhishek Gupta noted the gold decline occurred despite higher import duties, which typically increase bullion stock value.
This move reflects policymakers’ concerns over persistent capital outflows and elevated crude prices tied to the Iran conflict and potential Strait of Hormuz disruptions. With current account deficit widening, the central bank prioritized liquid foreign currency reserves over gold.
Forex defense strategy
As of March, RBI held 880.52 metric tonnes of gold, with 77% stored domestically, up from 66% six months earlier. Most overseas gold remains with the Bank of England and Bank for International Settlements. Rising gold repatriation reflects growing caution about overseas asset safety after Western nations froze Russian reserves following the Ukraine war.
Rupee under pressure
RBI Governor Sanjay Malhotra is reportedly evaluating multiple measures, including possible interest rate hikes and attracting dollar inflows. Market interventions have helped the rupee outperform Asian peers since May 20’s record low, though it traded 0.2% lower at Rs 95.17 against the dollar on Tuesday.
Asia braces for fuel impact
Asia faces potential major fuel disruptions as the US-Iran war threatens Strait of Hormuz oil shipments. Brent crude has surged over 2%, with analysts warning of sustained price hikes if shipping routes remain compromised. Petrol and diesel prices in India have already climbed to Rs 102.12 and Rs 95.20 per litre in Delhi, with further increases possible amid global supply uncertainty.
