India's forex pile rises to six-month peak on sustained capital inflows

India's foreign exchange reserves surged to $716.9 billion, marking their highest levels in approximately six months as of the week ending August 14, according to data released on Friday. The increase was largely driven by sustained capital inflows under the central bank's policy measures aimed at bolstering India's balance of payments.

The reserves grew by nearly $10 billion week-on-week, with a significant $7.2 billion gain in the central bank's foreign currency assets, while the value of gold holdings also rose by $2.7 billion. Over the past seven weeks, the central bank's foreign exchange (FX) pile has been on the rise, accumulating about $50 billion in total.

Currently, the reserves are nearing a record high of $728.5 billion, which was recorded in February. The RBI implemented measures in June to attract dollar inflows, including discounted hedging facilities for overseas borrowings by state-run entities and a complimentary hedging facility for banks to raise overseas FX deposits. The central bank utilized discounted FX swaps to absorb these inflows.

In a recent announcement, the RBI revealed it had received nearly $57 billion worth of inflows by August 13, primarily consisting of over $50 billion in FX deposits. This surge in inflows prompted the central bank to expedite the closure of its deposit hedging facility by a month to August 31. The central bank's frequent interventions in the foreign exchange market to support the rupee are believed to have mitigated the impact of some overseas dollar inflows, according to bankers.

Foreign exchange reserves encompass India's position in the International Monetary Fund (IMF) Reserve Tranche.