India's forex reserves surge $44.9 billion to record $785.7 billion, fourth largest globally

India's foreign-exchange reserves reached a record high of $785.706 billion in the week to September 4, marking a surge of $44.903 billion. This makes India the fourth largest holder of forex reserves globally, following China, Japan, and Switzerland. The increase in reserves was primarily driven by a dedicated dollar-mobilization program, which exceeded market expectations.

The foreign currency assets grew by $47.498 billion in the reporting week alone, reaching a total of $648.168 billion, according to the Reserve Bank of India's latest weekly statistical bulletin. However, gold reserves contracted by $2.594 billion to $34.944 billion during the same period.

The forex reserves have been on an upward trend for the 10th consecutive week, with a cumulative $119 billion gain, strengthening the central bank's ability to intervene in the forex market. RBI sold $7.7 billion in the spot market in August to support the local currency and reduce volatility, without purchasing dollars. The reserve bank has, however, obtained the bulk of the increase through a special dollar-rupee swap facility with banks, which accumulated $136.377 billion through the dedicated dollar-inflow program in approximately two-and-a-half months.

Inflows into foreign currency non-resident bank (FCNR-B) deposits alone amounted to $127.226 billion, helping stabilize the foreign exchange market and improve sentiment. RBI Governor Sanjay Malhotra stated that on a net basis, the overseas flows would generate additional revenue for RBI through interest earned on the investments of the additional flows.

The higher-than-expected inflows led the RBI to close the FCNR-B window on August 31, instead of the scheduled September 30. The dollar-mobilization scheme, including external commercial borrowing and overseas foreign currency borrowing, will continue until December 31.