The Reserve Bank of India’s foreign ??exchange forward position climbed to an all-time high of $136.7 billion in July, fuelled by a surge in overseas deposits following the central bank’s measures ??to attract dollar inflows and support the rupee.
The July figure marked an increase of about $33 billion from June and comfortably eclipsed the previous high of $106.6 billion hit in May.
A key measure was a foreign currency non-resident (FCNR) deposits scheme, which allowed commercial banks to swap dollar proceeds raised from non-resident Indians with the central bank at zero cost.
Such deposits accounted for the bulk of the overseas inflows mobilised by banks, making up $65.4 billion of the total $72.8 billion received under the various initiatives through August 21.
Through July 31, FCNR(B) deposits had accounted for $36.7 billion of the total $40.8 billion in foreign exchange inflows mobilised under the measures.
RBI Builds firepower
The dollar inflows are swapped by the banks with the RBI, adding to India’s foreign exchange reserves while creating a corresponding forward liability on the central bank’s balance sheet, which is reflected in its foreign exchange forward book.
The increase in FCNR(B)-related flows was evident in the maturity profile of the forward book. The RBI’s FX forward liabilities maturing beyond one year, the bucket where much of the FCNR(B) swap-related exposure would be reflected, rose to $91.5 billion in July from $64.2 billion in June.
Meanwhile, India’s foreign exchange reserves rose ??to a lifetime high of $729.3 billion in the week through August 21, providing the RBI additional ammunition to support the rupee.
The central bank has remained a regular presence in the spot market over the last several sessions, selling dollars to limit the currency’s weakness amid rising oil prices and concerns over U.S. interest rates.
Further build-up ahead
With the July data capturing only part of the inflows attracted by the RBI’s measures, analysts expect India’s foreign exchange reserves to rise further and the central bank’s forward position to continue expanding.
FCNR(B) deposits raised through August 31 are eligible for zero-cost swaps with the RBI, while the concessional swap access for external commercial borrowing and overseas bank borrowings remains open until December 31.