(Aug 7): India’s foreign exchange reserves are expected to swell to a near-record high within weeks, driven by stronger capital inflows following a series of central bank measures, analysts said.

The stockpile rose by US$10.5 billion (RM42.96 billion) to US$692.9 billion in the week ended July 31, marking the sharpest increase since the end of January, according to Reserve Bank of India data. That puts the reserves within striking distance of their record high of US$728.5 billion set in February.

Reserves have climbed for five straight weeks as the RBI’s measures helped bring in US$40.8 billion through a mix of foreign currency deposits from its diaspora and overseas borrowings since early June. The rising stockpile is set to give the central bank more firepower to defend the rupee, which has rebounded 1.8% from its record low in May.

“We could potentially see peak reserves of around US$730 billion in September, provided there is no significant loss from revaluation of gold or non-dollar reserves,” said Gaura Sen Gupta, chief economist at IDFC First Bank. She expects RBI measures to attract a total of about US$90 billion to
US$100 billion. 

To be sure, the reserves may fail to reach a new high if the RBI sells more dollars to support the rupee and more of its outstanding forward dollar positions mature, analysts said. 

“It’s hard to say whether they will go back to the record high because the RBI has also been dipping into its reserves to deliver dollars on forward maturities and to intervene in the market,” said Sakshi Gupta, chief economist at HDFC Bank.

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