India's Foreign Exchange Reserves Rise Toward Record Highs

The Reserve Bank of India reported that foreign exchange reserves increased by $9.905 billion to reach $716.907 billion for the week ending August 14. This growth follows a previous weekly jump of $14.136 billion, marking a recovery from a decline that followed an all-time high of $728.494 billion in February. The recent increase was primarily driven by a $7.225 billion rise in foreign currency assets and a $2.679 billion increase in gold reserves.

Much of this growth stems from a special USD-INR swap facility introduced on June 8 to strengthen domestic foreign exchange availability. As of August 21, inflows under this facility reached $72.85 billion. Foreign Currency Non-Resident (Bank) deposits were the primary driver, accounting for $65.397 billion, while overseas and external commercial borrowings contributed the remainder. HSBC, State Bank of India, ICICI Bank, and HDFC Bank emerged as the leading mobilizers of these funds.

Due to the strong response and sharp acceleration of inflows in August, the Reserve Bank of India moved the closure date for the FCNR(B) mobilization window from September 30 to August 31. The facility for external commercial and overseas foreign currency borrowings will remain open until December 31. Bankers predict that total reserves will exceed the previous record of $728 billion by the end of August.