India’s foreign exchange reserves rose by $12.4 billion to a record $729.3 billion in the week ended August 21, strengthening the country’s external position.

BulletsIn

• According to Reserve Bank of India data, India’s foreign exchange reserves increased by $12.4 billion during the week ended August 21.
• The reserves reached a record $729.3 billion, surpassing the previous high of $728.5 billion recorded in February.
• The sharp increase was supported by strong foreign currency inflows following measures introduced by the central bank to attract overseas capital.
• The Reserve Bank of India launched a special deposit programme in June to attract foreign currency deposits from overseas Indians and other non-resident customers.
• The measures attracted around $72.8 billion in inflows through August 21, strengthening India’s external financial position.
• Higher reserves give the Reserve Bank of India greater capacity to intervene in foreign exchange markets and support the rupee when required.
• The rupee has recovered around 1.7 percent from its record low in May but remains under pressure from elevated crude oil prices.
• The overseas deposit strategy carries significant costs because the central bank is bearing hedging expenses incurred by banks offering attractive rates to foreign customers.