India’s forex reserves hit record $785.7 billion

MUMBAI— India’s foreign exchange reserves climbed to a record $785.7 billion in the week ended September 4, extending their rise to a tenth consecutive week, as policy measures aimed at boosting dollar inflows strengthened the country’s external position.

Data from the Reserve Bank of India showed reserves increased by nearly $45 billion in a single week and have risen by almost $120 billion over the past 10 weeks.

The surge follows a package of measures unveiled by the RBI in June to encourage dollar inflows. These included discounted hedging facilities for overseas borrowings by state-run companies and banks, as well as a free hedging facility for banks raising foreign-currency deposits overseas.

Between June 5 and August 31, the RBI received $136.3 billion through these measures. Non-resident Indian deposits accounted for the bulk of the inflows, reaching $127 billion, far exceeding initial expectations.

The strong inflows prompted the central bank to bring forward the closing date of its hedging facility for overseas deposits by one month to the end of August.

For the latest week, the increase in reserves was driven mainly by a $47.4 billion rise in foreign currency assets. This was partly offset by a decline of about $2.6 billion in the value of the RBI’s gold holdings, which stood at $113.8 billion.

Bankers said the RBI’s frequent intervention in the foreign exchange market to support the rupee has likely absorbed some of the impact of the large dollar inflows.

Analysts, meanwhile, cautioned that the headline increase in reserves does not represent an equivalent increase in the central bank’s unencumbered foreign currency position. While dollar inflows add to the RBI’s spot foreign exchange reserves, some of the inflows are matched by future obligations recorded in its forward book.

The record reserve level nevertheless provides India with a substantial buffer against external shocks, including volatility in global financial markets, changes in capital flows and pressure on the rupee.