India’s forex reserves jump $12.42 billion to an all-time high of $729.33 billion

India’s foreign exchange reserves surged by $12.42 billion to an all-time high of $729.33 billion in the week ended August 21, according to data released by the Reserve Bank of India (RBI) on Friday. The sharp increase took the reserves past their previous record of $728.49 billion reached in February this year. In the preceding week, the country’s forex kitty had risen by $9.91 billion to $716.91 billion. India’s reserves have now increased for eight consecutive weeks, adding about $63 billion over the period amid strong foreign currency inflows.

Foreign currency assets lead rise

Foreign currency assets, which constitute the largest component of the reserves, increased by $9.48 billion during the reporting week to $591.33 billion. Expressed in dollar terms, foreign currency assets also reflect changes in the value of non-US currencies such as the euro, pound and yen held as part of the country’s reserves. The rise comes amid measures introduced in recent months to attract additional foreign currency flows and strengthen India’s external position.

Gold reserves climb

The value of the RBI’s gold reserves increased by $2.80 billion to $114.22 billion during the week. Special Drawing Rights with the International Monetary Fund rose by $112 million to $18.85 billion, while India’s reserve position with the IMF increased by $26 million to $4.93 billion. All four major components of the country’s foreign exchange reserves, therefore, registered increases during the week.

Nearly $73 billion flows in under special measures

The RBI and the government had introduced a series of measures in June aimed at attracting additional dollar inflows, including facilities linked to overseas borrowings and foreign currency deposits. Nearly $73 billion has flowed in under these measures between June 5 and August 21, with about $65 billion coming through Foreign Currency Non-Resident (Bank) deposits. The strong response has contributed to the rapid rebuilding of India’s foreign exchange buffer over recent weeks.

Reserves strengthen external buffer

At $729.33 billion, India’s reserves are now about $38.22 billion higher than their level at the end of March and around $38.61 billion above the corresponding level a year ago. A large foreign exchange reserve provides the central bank with greater capacity to manage periods of currency volatility and external financial stress.

The RBI can use its reserves to intervene in the foreign exchange market when required, including through dollar sales to curb excessive movements in the rupee. The latest record level consequently gives the central bank a stronger cushion at a time when global financial markets remain exposed to geopolitical and economic uncertainty.