India’s Foreign-Exchange Reserves Jump to Six-Month High

The Reserve Bank of India (RBI) reported that total foreign-exchange reserves reached $716.9 billion as of the week ending August 14, the highest level in roughly six months. The increase reflects a $9.9 billion week-on-week rise, driven by a $7.2 billion gain in foreign-currency assets and a $2.7 billion rise in gold holdings. The reserves now sit just below the record peak of $728.5 billion recorded in February.

Reuters

In June, the RBI introduced two hedging facilities to attract foreign-currency inflows: a discounted hedging option for overseas borrowings by state-run firms and banks, and a free-of-cost facility for banks to raise overseas FX deposits. By August 13, the RBI said it had attracted nearly $57 billion in inflows under these measures, with over $50 billion coming from FX deposits. Over the preceding seven weeks, the central bank’s FX pile has grown by about $50 billion.

Reuters

The RBI absorbs incoming dollars through discounted FX swaps, adding them to its reserve pool. Bankers note that the central bank’s frequent market interventions to support the rupee have likely offset some of the impact of the overseas inflows. The RBI also announced that, because of the volume of deposits, it will close the deposit-hedging facility early, moving the deadline to August 31.

Reuters

With reserves edging toward the February record, the RBI’s strategy appears to be strengthening India’s balance of payments and providing a buffer against external shocks. The early closure of the hedging facility suggests the central bank expects continued inflows but aims to limit exposure to short-term speculative deposits. Future data releases will show whether the reserve buildup sustains momentum beyond the current six-month high.

Reuters