Record $44.9 bn surge in a week makes India 4th-largest Fx holder

India’s foreign exchange reserves posted their biggest-ever weekly increase, surging by $44.9 billion to a record $785.7 billion in the week ended September 4, boosted by strong dollar inflows under the Reserve Bank of India’s (RBI’s) concessional swap window, especially the foreign currency non-resident (bank) — or FCNR(B) — deposits scheme.

This increase pushed India past Russia to become the world’s fourth-largest holder of foreign exchange reserves, behind China, Japan and Switzerland, according to data compiled by Bloomberg. Total reserves had stood at a previous high of about $740 billion in the week ended August 28.

The rupee, however, remains under pressure, falling for a fourth straight session on Friday to settle at 95.56 to the dollar from 94.45, as higher crude oil prices and US Treasury yields weighed on the currency. It pared losses after RBI intervention, dealers said. The rupee has weakened 4.79 per cent since the onset of the West Asia conflict and 0.4 per cent this month.

“This rise in foreign exchange reserves was expected given the amount of FCNR(B) flow,” said the treasury head at a private bank. “If we exclude gold, we almost had a $48 billion addition to the reserves,” the person added.

Gold reserves, by contrast, declined by $2.59 billion to $113.81 billion during the week as gold prices fell 0.56 per cent to $4,429 an ounce.

Market participants expect foreign currency assets to rise further as additional foreign currency inflows are likely to continue until the second week of September, potentially taking FCAs above $655 billion.

The RBI’s special swap measures had mobilised a higher-than-expected $136.4 billion in foreign currency inflows by August 31. The window for FCNR(B) deposits closed on August 31, while external commercial borrowings and overseas foreign currency bonds remain eligible under the facility until December 31. Banks can avail themselves of the swap facility for deposits already contracted until September 11.

Special drawing rights declined by $4 million to $18.8 billion, while India’s reserve position with the International Monetary Fund rose by $2 million to $4.91 billion, the RBI data showed.

Reserves have risen by $120 billion so far in the current financial year. Foreign currency assets have staged a sharp turnaround after almost two years of decline and stagnation, rising from $541 billion in the week ended June 26.

Total reserves had fallen to $666.9 billion in the week ended June 26 as the RBI sold dollars to contain volatility in the foreign exchange market amid the West Asia crisis. The central bank has since continued to intervene, including through dollar-rupee sell/buy swaps.

The RBI has also used swaps to absorb excess rupee liquidity, which has the additional effect of raising forward premiums and supporting the currency.

“The RBI conducted swap along with spot intervention which helped the rupee,” said a dealer at a state-owned bank. “The crude now at near $110 per barrel and US yield surging, the pressure is mounting on rupee,” the person added.