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

India’s foreign exchange reserves surged to a fresh record of $785.7 billion in the week ended September 4, supported by substantial dollar inflows following measures introduced by the Reserve Bank of India (RBI) to strengthen the country’s external position.

The latest data showed that India’s forex reserves have increased for 10 consecutive weeks, rising by nearly $120 billion during the period. The reserves recorded a weekly jump of almost $45 billion, marking one of the sharpest increases in recent times.

The rise follows a series of steps announced by the RBI in June to attract foreign currency inflows.

The measures included discounted hedging facilities for overseas borrowings by banks and state-run companies, along with a cost-free hedging facility that encouraged banks to raise foreign currency deposits from overseas Indians.

Between June 5 and August 31, the RBI received $136.3 billion through these initiatives. Non-resident Indian (NRI) deposits accounted for the bulk of the inflows, contributing around $127 billion, significantly exceeding market expectations.

The strong response prompted the central bank to reduce the availability period of its foreign currency deposit hedging facility by one month, ending it in August instead of September.

Reserves rise despite market interventions

During the week ended September 4, the increase in reserves was mainly driven by a $47.4 billion rise in foreign currency assets. However, the value of gold holdings declined by around $2.6 billion to $113.8 billion.

Bankers said RBI interventions in the foreign exchange market to support the rupee may have absorbed some of the additional dollar inflows. Analysts also noted that while the inflows strengthen headline reserves, they create future liabilities through the central bank’s forward book.