India’s forex reserves rise nearly $10 billion to six-month high of $716.9 billion

MUMBAI: India’s foreign exchange reserves surged nearly $10 billion in the week ended August 14 to $716.9 billion, their highest level in about six months, helped by strong foreign currency inflows generated by measures introduced by the Reserve Bank of India (RBI) to strengthen the country’s balance of payments.

According to data released by the RBI on Friday, the increase was driven primarily by a $7.2 billion rise in foreign currency assets, while the value of the central bank’s gold holdings increased by $2.7 billion.

India’s reserves have now risen for seven consecutive weeks, adding around $50 billion during the period and moving closer to the record high of $728.5 billion reached in February.

The sharp increase follows measures announced by the RBI in June to encourage dollar inflows. These included discounted hedging facilities for overseas borrowings by state-owned companies and banks, as well as a zero-cost hedging facility allowing banks to raise foreign currency deposits from overseas sources.

The RBI has been absorbing much of these inflows into its reserves through discounted foreign exchange swaps.

The central bank said last week that it had received nearly $57 billion in inflows under the measures by August 13, with more than $50 billion coming through foreign currency deposits. The scale of the inflows prompted the RBI to bring forward the closure of its deposit hedging facility by one month to August 31.

The rise in reserves comes as the RBI continues to closely manage conditions in the foreign exchange market and intervene to limit excessive volatility in the rupee. Bankers said such interventions may have offset part of the impact of incoming overseas dollars on the overall reserve accumulation.

Changes in foreign currency assets, which are reported in US dollar terms, also reflect fluctuations in the value of other currencies held by the RBI.

India’s foreign exchange reserves include foreign currency assets, gold holdings, the country’s reserve position with the International Monetary Fund and special drawing rights.