India's foreign exchange reserves showed the most significant weekly increase in history, rising by $44.9 billion to reach a record $785.7 billion for the week ending September 4. This growth was driven by a strong inflow of dollars received through the Reserve Bank of India's (RBI) concessional swap mechanism, particularly thanks to the Foreign Currency Non-Resident (FCNR(B)) deposit scheme.
Thanks to this increase, India overtook Russia and secured the fourth position globally in terms of foreign exchange reserves, trailing China, Japan, and Switzerland, according to data collected by Bloomberg. Previously, for the week ending August 28, total reserves stood at approximately $740 billion.
Nevertheless, the rupee continues to face pressure, falling for the fourth consecutive week on Friday to 95.56 against the dollar, down from 94.45. Higher crude oil prices and US Treasury yields are putting pressure on the currency. Dealers say the rupee has recovered some losses following RBI intervention. Since the conflict in the Middle East, the rupee has weakened by 4.79 percent, and this month by 0.4 percent.
According to the latest RBI data published on Friday, foreign assets, the largest component of foreign reserves, grew by $47.5 billion, reaching $648.17 billion for the week ending September 4. This figure, presented in dollar equivalent, also reflects the impact of changes in the value of non-US currencies such as the euro, pound sterling, and yen held in reserves.
A representative from a private bank treasury noted that the rise in foreign exchange reserves was expected given the volume of the FCNR(B) inflow. He added that excluding gold, nearly $48 billion was added to the reserves.
Conversely, gold reserves decreased by $2.59 billion, totaling $113.81 billion for the reporting week, as gold prices fell by 0.56 percent to $4,429 per ounce.
Market participants predict further growth in foreign exchange assets as an inflow of foreign currency is expected to continue until the second week of September, potentially pushing foreign assets above $655 billion.
Special RBI swap measures mobilized more than expected, with a foreign currency inflow of $136.4 billion by August 31. The period for FCNR(B) deposits closed on August 31, but external commercial borrowings and foreign currency bonds remain available under this program until December 31. Banks can utilize the swap mechanism for deposits made before September 11.
RBI data also showed that special drawing rights decreased by $4 million to $18.8 billion, while India's position in the International Monetary Fund increased by $2 million to $4.91 billion.
Since the beginning of the current fiscal year, reserves have grown by $120 billion. Foreign assets have shown a sharp turnaround after almost two years of decline and stagnation, rising from $541 billion for the week ending June 26.
Previously, for the week ending June 26, total reserves had fallen to $666.9 billion as the RBI sold dollars to curb volatility in the foreign exchange market amid the Middle East crisis. The central bank has continued to intervene since then, including using dollar/rupee buy/sell swaps. The RBI has also used swaps to absorb excess rupee liquidity, which further contributes to higher forward premiums and currency support.
A state bank dealer noted that 'the RBI conducted a swap along with spot intervention, which helped the rupee.' However, he added that 'with the current crude oil price of about $110 per barrel and rising US yields, pressure on the rupee is increasing.'