India’s foreign exchange reserves rose to a near three-month high of $692.9 billion as of July 31,
data from the Reserve Bank of India showed on Wednesday.
Reserves jumped nearly $10.5 billion compared to the
previous week, in their biggest surge since the week ended
January 30.
A larger pile of foreign exchange reserves gives the central
bank greater capacity to defend the rupee, which has been hit by
oil price volatility generated by the U.S.-Israeli war with
Iran, clouding India’s macroeconomic outlook.
Traders said the sharp increase in the size of reserves can
be attributed to dollar inflows from a foreign-currency deposit
drive launched by the RBI in June to bolster the country’s
balance of payments. The RBI has received $36.7 billion via
Foreign Currency Non-Resident deposits raised by banks through
July 31.
“As flows from the FCNR scheme have gained pace, we expect
the headline FX reserve figure to cross $700 billion in coming
weeks, and it will also help the RBI to reduce its short FX
book,” said Dhaval Shah, founder and managing director, De-Risk
Forex Consultancy.
“The bigger picture will continue to favor rupee
appreciation.”
Lenders are permitted to swap these foreign currency
deposits with the central bank under a zero-cost hedging
facility open until the end of September.
“India’s foreign exchange reserves continue to be adequate
in terms of the standard metrics of reserve adequacy with import
cover of over 10 months and external debt cover of 90.8%,” RBI
Governor Sanjay Malhotra said while delivering his monetary
policy address in Mumbai.
The RBI maintained status quo on rates on Wednesday, in line
with expectations.
In the week to which the data pertains, the rupee
jumped 1.2% to 95.38 per dollar, its biggest weekly jump in four
months.