India's FX reserves surge $45 billion on-week to hit record high on robust capital flows

India's foreign exchange reserves reached an all-time peak of $785.7 billion in the seven days through September 4, according to central bank figures released on Friday. Business Recorder reported that the jump came from a wave of incoming funds under government measures meant to strengthen the country's external payments position. The week itself added nearly $45 billion, and the rise has continued for ten weeks.

Measures unveiled in June included reduced-price hedges for overseas loans taken by state-owned companies and lenders, plus a no-cost hedging option for banks raising overseas currency deposits. Between June 5 and August 31, the Reserve Bank of India collected $136.3 billion under these schemes, with $127 billion arriving as deposits from non-resident Indians. That response was stronger than expected, so the central bank shortened the overseas deposit hedging window by a month, to the end of August.

Bankers said the central bank's frequent rupee-support interventions have probably absorbed part of the dollar gains. Foreign currency assets rose $47.4 billion during the week, while gold slipped roughly $2.6 billion to $113.8 billion. Tanay Dalal of Axis Bank noted that the inflows lift spot reserves but add a future obligation to the forward book, and reserves could level off near $750 billion if the central bank accelerates forward sales due within 12 months.