India's foreign exchange reserves surged to a six-month high of $716.9 billion as of August 14, nearing the record high of $728.5 billion seen in February. This increase, which saw a nearly $10 billion jump week-on-week, is primarily attributed to the Reserve Bank of India's aggressive dollar mobilization through its special forex swap facility.
As of August 21, total foreign exchange inflows under the RBI's swap facility reached $72.8 billion, with FCNR(B) deposits accounting for $65.4 billion. This mobilization significantly exceeded the 2013 FCNR(B) swap scheme which raised approximately $26 billion. The accelerated inflows prompted the RBI to close the FCNR(B) window earlier than expected, on August 31, reflecting confidence in the country's external sector strength.
Analysts from Nomura, Sonal Varma and Aurodeep Nandi, noted the acceleration in deposits, estimating FCNR(B) inflows could reach nearly $80 billion. DBS Bank's Radhika Rao highlighted that the total forex mobilization, including ECBs and OFCBs, could reach $70-$75 billion, contributing to a stabilizing dollar-rupee exchange rate and diminished urgency for extraordinary support measures. QuantEco Research anticipates cumulative flows could potentially reach $85 billion by December.
The robust inflows have also had a positive impact on India's balance of payments, which recorded a $2.9 billion surplus in June, a significant turnaround from a deficit in the previous year. This was driven by a $9.1 billion surplus in the capital account. Banking capital flows are expected to improve, pushing the full-year BOP to upwards of $40 billion, according to Rao. This influx has provided fresh liquidity for Indian banks, with systemic deposit growth increasing to a multi-month high of 15.4% year-on-year by the end of July.
