India’s forex reserves hit 3-month peak, see biggest weekly rise in six months

India's foreign exchange reserves surged to a three-month high of $692.9 billion by July 31, according to data released on Wednesday by the Reserve Bank of India. The reserves increased by a substantial $10.5 billion compared to the previous week, marking the largest weekly rise in six months. This significant growth in reserves provides the central bank with enhanced capabilities to stabilize the rupee, which has been impacted by oil price fluctuations resulting from the US-Israeli conflict with Iran.

Analysts attribute the impressive increase in reserves to dollar inflows stemming from a foreign-currency deposit drive initiated by the RBI in June to bolster the nation's balance of payments. The RBI has accumulated $36.7 billion through Foreign Currency Non-Resident deposits raised by banks as of July 31. "With the pace of flows from the FCNR scheme gaining momentum, we predict the headline FX reserve figure will surpass $700 billion in the coming weeks, which will also assist the RBI in reducing its short-term foreign exchange positions," stated Dhaval Shah, founder and managing director of De-Risk ForexConsultancy.

"The bigger picture will continue to favor the rupee's appreciation." The RBI governor, Sanjay Malhotra, confirmed that India's foreign exchange reserves remain adequate based on standard metrics, including an import cover of over 10 months and an external debt cover of 90.8 percent, during his monetary policy address in Mumbai.

The RBI maintained steady interest rates on Wednesday, as anticipated. In the week covered by the data, the rupee climbed 1.2% to 95.38 per dollar, marking its largest weekly gain in four months.