India's Forex Reserves Hit All-Time High of $740.8 Billion on Strong Inflows

India's foreign exchange reserves climbed to a record $740.80 billion in the week ending August 28, buoyed by substantial capital inflows from special central bank programs, according to data released Friday by the Reserve Bank of India (RBI).

The increase represents the ninth consecutive week of growth for the nation's currency holdings, which have expanded by nearly $75 billion during this period. The latest figure is a significant jump from the $729.33 billion recorded in the previous week ending August 21.

Inflows Driven by Central Bank Initiatives

The primary driver behind the surge has been the success of programs introduced in June to attract dollar deposits. These measures include discounted hedging facilities for overseas borrowings by state-run companies and banks, as well as a free-of-cost hedging option for banks raising foreign exchange deposits from overseas.

The RBI reported that these initiatives attracted more than $136 billion between June 5 and August 31. A significant portion of these funds came from a specific source:

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• Non-resident Indian deposits: Accounted for approximately $127 billion of the total inflows under the programs.

Market Impact and Valuation

The robust inflows and growing reserves provided support for the local currency. The Indian rupee gained 0.3% against the U.S. dollar during the week, closing at 95.3775.

It is important to note that the headline figure is also influenced by valuation changes. The RBI's foreign currency assets, a major component of the reserves, are expressed in dollar terms and are affected by the appreciation or depreciation of other currencies held in the portfolio, such as the euro, pound, and yen.