India’s foreign exchange reserves surged by a record $44.90 billion in a single week to hit a fresh lifetime high of $785.71 billion, Reserve Bank of India data showed on Friday, extending a sharp recovery in the country’s external buffers following large foreign currency inflows in recent months.
The reserves stood at $785.706 billion in the week ended September 4, up from the previous record of $740.803 billion a week earlier, when the forex kitty had risen by $11.475 billion, according to the RBI.
The latest increase is the largest weekly addition to India’s foreign exchange reserves on record and comes after the central bank’s concessional forex swap facilities triggered a sharp rise in foreign currency inflows.
Foreign currency assets (FCAs), the largest component of the reserves, jumped by $47.498 billion during the week to $648.168 billion, RBI data showed. The rise in FCAs was larger than the increase in overall reserves as a decline in the value of the central bank’s gold holdings partly offset the gains.
Gold reserves fell by $2.594 billion to $113.816 billion. Special Drawing Rights (SDRs) with the International Monetary Fund declined by $4 million to $18.806 billion, while India’s reserve position with the IMF rose marginally by $2 million to $4.916 billion.
Foreign currency assets are expressed in dollar terms and therefore also reflect changes in the value of non-US currencies such as the euro, pound and yen held as part of the reserves.
The record reserve accumulation marks a sharp turnaround from earlier this year, when India’s forex kitty came under pressure following the escalation of the conflict in West Asia. The rupee weakened amid higher crude oil prices and broader risk aversion, prompting the RBI to intervene in the foreign exchange market through dollar sales.
Reserves, however, began rebuilding after the RBI announced special dollar-rupee swap facilities in June to encourage overseas foreign currency inflows. The facilities covered fresh Foreign Currency Non-Resident Bank, or FCNR(B), deposits as well as eligible External Commercial Borrowings (ECBs) and Overseas Foreign Currency Borrowings (OFCBs).
More than $136 billion was mobilised through these routes by the end of August, with FCNR(B) deposits accounting for the bulk of the inflows.
The RBI subsequently brought forward the closure of the FCNR(B) window to August 31 following the strong response, while swap facilities for eligible ECB and OFCB inflows remain available until the end of December.
The rapid accumulation has substantially strengthened India’s headline reserve buffer. At the same time, the large dollar inflows swapped with the RBI have injected significant rupee liquidity into the domestic banking system, requiring the central bank to step up liquidity absorption operations.
The RBI has been using instruments including variable rate reverse repo operations to manage the surplus liquidity generated by the foreign currency inflows.