RBI FX Reserves Hit Record High of $729.33 Billion on August 21

India's foreign exchange reserves rose to a fresh all-time high of $729.33 billion as of August 21, surpassing the previous record of $728.49 billion touched on February 27, data released by the Reserve Bank of India showed.

The reserves rose $12.42 billion during the week, led by a $9.48 billion increase in foreign currency assets to $591.33 billion.

Gold reserves rose $2.80 billion to $114.22 billion during the week.

The sharp increase in the forex kitty comes after the RBI introduced a special dollar/rupee swap window in June to encourage foreign currency inflows through FCNR(B) deposits, external commercial borrowings and overseas foreign currency borrowings.

The central bank announced the facility on June 8. Under the scheme, eligible inflows could be swapped with the RBI, allowing the central bank to absorb the foreign currency while providing rupee liquidity.

The move was aimed at attracting overseas funds and augmenting banking system liquidity.

The response to the measures has been strong. On August 22, the RBI said that steps introduced in June, including incentives for FCNR(B) deposits, external commercial borrowings and overseas foreign currency borrowings, had mobilised nearly $73 billion in forex inflows till August 21.

Given the strong response, the RBI has decided that the swap facility for FCNR(B) deposits will be available only for deposits mobilised till August 31. Eligible FCNR(B) swaps can be availed with the RBI till September 11. The swap facility for external commercial borrowings and overseas foreign currency borrowings will remain open till December 31.

The record reserve level strengthens the RBI's buffer against external shocks and gives the central bank greater capacity to manage volatility in the dollar/rupee market.