RBI Governor Says Record Forex Inflows Boost Income as India’s Reserves Hit New High

India’s foreign exchange reserves surged to a fresh record of $785.7 billion in the week ended September 4, supported by substantial dollar inflows following measures introduced by the Reserve Bank of India (RBI) to strengthen the country’s external position.The latest data showed that India’s forex reserves have increased for 10 consecutive weeks, rising by nearly $120 billion during the period. The reserves recorded a weekly jump of almost $45 billion, marking one of the sharpest increases in recent times.The rise follows a series of steps announced by the RBI in June to attract foreign currency inflows. RBI Governor Says Record $127 Billion Forex Inflows Will Boost RevenueThe measures included discounted hedging facilities for overseas borrowings by banks and state-run companies, along with a cost-free hedging facility that encouraged banks to raise foreign currency deposits from overseas Indians.Between June 5 and August 31, the RBI received $136.3 billion through these initiatives. Non-resident Indian (NRI) deposits accounted for the bulk of the inflows, contributing around $127 billion, significantly exceeding market expectations.The strong response prompted the central bank to reduce the availability period of its foreign currency deposit hedging facility by one month, ending it in August instead of September. Reserves rise despite market interventionsDuring the week ended September 4, the increase in reserves was mainly driven by a $47.4 billion rise in foreign currency assets. However, the value of gold holdings declined by around $2.6 billion to $113.8 billion.Bankers said RBI interventions in the foreign exchange market to support the rupee may have absorbed some of the additional dollar inflows. Analysts also noted that while the inflows strengthen headline reserves, they create future liabilities through the central bank’s forward book.

The Reserve Bank of India (RBI) has dismissed concerns that its record foreign currency deposit mobilisation exercise could create a financial burden, saying the inflows will instead help generate additional revenue for the central bank.RBI Governor Sanjay Malhotra said the dollars raised through the scheme would be invested in overseas government securities, allowing the central bank to earn interest income. “Net, net, it will only result in additional revenues, additional income” for the central bank because the dollars can be invested in government securities abroad to earn interest, Malhotra told CNBC-TV18. 'Fintech Has Put India At Forefront Of Digital Innovation': RBI Governor Sanjay Malhotra RBI manages surplus liquidity after record inflowsThe comments come as the central bank manages the impact of a sharp increase in foreign exchange inflows, which has pushed liquidity levels in the banking system higher. The additional rupee liquidity created through currency swaps has raised concerns that lower borrowing costs could affect monetary policy objectives.Malhotra said the RBI has several options to absorb excess liquidity, including open market operations and currency swaps. “We are alert to that. We have enough tools, we have tools like Open Markets Operations, swaps as necessary to withdraw surplus,” he said. “Nothing is off the table,” the governor added.The RBI received around $127 billion through foreign currency deposits from overseas Indians, exceeding market expectations. The overall fundraising through related measures crossed $136 billion by August. RBI highlights strong economic growthMalhotra also said India’s economy has shown resilience despite recent challenges. He noted that private consumption, investment and exports supported growth momentum during the first quarter.“The Indian economy has weathered this shock really well,” Malhotra said.India’s gross domestic product expanded 7.8% during the April-June quarter, surpassing expectations. The upcoming festive season, which includes Diwali celebrations, is also expected to support consumption and further strengthen economic activity.

India’s central bank rejected estimates that its record foreign-currency deposit drive will prove costly, saying the inflows will instead generate additional income for the Reserve Bank of India as it deploys the dollars overseas, Governor Sanjay Malhotra said Friday.