India’s foreign exchange reserves rose by a record USD 44.903 billion in the week ended September 4, reaching an all-time high of USD 785.706 billion, according to Reserve Bank of India data released on Friday.
The sharp rise followed a USD 11.475 billion increase in the previous week, when India’s forex reserves stood at USD 740.803 billion. The latest weekly addition was the largest recorded so far and came after stronger foreign-currency inflows under measures introduced by the RBI in June.
India’s forex reserves faced pressure earlier this year as the rupee weakened during the West Asia conflict. The RBI sold dollars in the foreign exchange market to reduce sharp currency movements. Total reserves had fallen to USD 666.9 billion in the week ended June 26.
However, the trend changed after the central bank introduced concessional foreign exchange swap measures. The programme aimed to attract foreign-currency funds and improve liquidity in the domestic market. By August 31, the measures had brought in about USD 136.4 billion.
Foreign Currency Non-Resident Bank, or FCNR(B), deposits accounted for most of these flows. Banks mobilised USD 127.226 billion through the scheme, while overseas foreign-currency borrowings and external commercial borrowings added to the total.
The RBI launched the FCNR(B) window on June 8 and initially planned to keep it open until September 30. However, it closed the window on August 31 after saying the programme had achieved its objective ahead of schedule.
Foreign currency assets, the largest part of India’s foreign exchange reserves, increased by USD 47.498 billion during the week to USD 648.168 billion, RBI data showed.
These assets include currencies such as the euro, pound and yen, although the RBI reports their value in US dollars. Changes in exchange rates can therefore affect the reported value of the foreign currency assets.
A private bank treasury head said, “This rise in foreign exchange reserves was expected given the amount of FCNR(B) flow.” The person added, “If we exclude gold, we almost had a USD 48 billion addition to the reserves.”
Gold reserves moved in the opposite direction. Their value fell by USD 2.594 billion to USD 113.816 billion during the week. Special drawing rights with the International Monetary Fund declined by USD 4 million to USD 18.806 billion, while India’s reserve position with the IMF rose by USD 2 million to USD 4.916 billion.
The latest increase pushed India above Russia to become the world’s fourth-largest holder of foreign exchange reserves, behind China, Japan and Switzerland, according to Bloomberg data.
India’s reserves increased by about USD 120 billion in the current financial year. Foreign currency assets also recovered sharply from USD 541 billion in the week ended June 26.
Meanwhile, the rupee remained under pressure despite the rise in reserves. It fell for a fourth consecutive session on Friday, September 11, and closed at 95.56 against the US dollar, compared with 94.45 in the previous session.
Higher crude oil prices and rising US Treasury yields weighed on the currency. Dealers said RBI intervention helped the rupee recover part of its losses during the session. A state-owned bank dealer said, “The RBI conducted a swap along with spot intervention, which helped the rupee.”
Foreign-currency inflows may continue through some RBI facilities. External commercial borrowings and overseas foreign-currency bonds remain eligible under the program until December 31.
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