India Forex Reserves Hit Record $785.7 Billion After Massive Dollar Inflows Under RBI Measures

India's foreign exchange reserves reached an all-time high of $785.7 billion in the week ending September 4, driven by significant dollar inflows following steps taken by the Reserve Bank of India (RBI) to bolster the nation's external standing. This surge marked the tenth consecutive week of growth, with the reserves expanding by nearly $120 billion during this period.

The reserves experienced a weekly surge of around $45 billion, marking one of the most substantial increases in recent memory. The boost came after a series of measures announced by the RBI in June aimed at attracting foreign currency inflows.

The RBI Governor stated that a record $127 billion in forex inflows would help bolster revenue. These measures comprised discounted hedging facilities for overseas borrowings by banks and state-run entities, along with a complimentary hedging facility that incentivized banks to attract foreign currency deposits from overseas Indians.

Between June 5 and August 31, the RBI garnered $136.3 billion through these initiatives. Non-resident Indian (NRI) deposits made up the majority of these inflows, contributing approximately $127 billion, substantially surpassing market forecasts.

The central bank subsequently decided to condense the availability period of its foreign currency deposit hedging facility by a month, concluding it in August rather than September. Reserves increased predominantly due to a $47.4 billion surge in foreign currency assets during the week ending September 4. However, the value of gold holdings fell by around $2.6 billion to $113.8 billion.

Economists suggested that RBI interventions in the foreign exchange market to stabilize the rupee might have absorbed some of the additional dollar inflows. Analysts also pointed out that while the inflows fortify headline reserves, they introduce future liabilities through the central bank's forward book.