RBI Cut US Debt, Bought Gold Even Before Trump’s Tariffs

India's central bank steadily reduced its purchases of US Treasuries and increased gold buying even before President Donald Trump slapped the country with punishing tariffs, as the country diversifies away from what was once seen as a safe haven asset. 

Latest data from the US Treasury Department show India's investment in Treasuries slipped to $227.4 billion in June from $235.3 billion in May and about $242 billion a year earlier. Separate figures show the Reserve Bank of India has also increased its gold holdings. 

India's finance minister said last week the RBI was taking a “very considered decision” to diversify reserves — which currently stands at about $694 billion dollars, the fourth-biggest in the world.  

The shift comes even as foreign holdings of Treasuries climbed to a record in June, fueled by speculation of Federal Reserve rate cuts and potential capital gains. At the same time, central banks have been boosting gold purchases to reduce their risks to the US dollar as global growth becomes more uncertain. 

Gaurav Kapur, chief economist at IndusInd Bank Ltd., said geopolitical tensions are also playing a role in central bank decisions, especially after the US froze Russia's reserves in 2022 following the invasion of Ukraine.

“There is a sense that if the US can shut Russia off from its assets, that can be repeated with any country,” he said. “Any central bank will want to diversify.”

India's central bank was shut on Monday for a public holiday and didn't respond to a request for comment.

US-India tensions have increased since August after Trump imposed 50% tariffs on exports to the US — the highest in Asia — half of it as a penalty for buying Russian oil. US Treasury Secretary Scott Bessent recently labeled China and India “bad actors” for fueling Moscow's war.

RBI figures show the central bank boosted gold holdings to about 880 metric tons as of July from 841.5 tons a year earlier. The central bank is also repatriating more of its gold reserves, with latest data showing it held 512 tons of bullion domestically, up from 292 tons in September 2020.

Michael Patra, former RBI deputy governor of the RBI, wrote in a column last month that central banks have “concerns about their ability to access gold stored overseas in the event of a crisis or in the case of sanctions, freezing and confiscation.” The move also marks a strategic effort to diversify reserves and reduce reliance on the US dollar, he said.

Patra, who retired in January as a deputy governor of the central bank for five years, was one of the key people involved in the RBI's gold purchase decision under then Governor Shaktikanta Das.