India Attracts Record $136.38 Billion in Forex Inflows, Strengthening Rupee Defence

India has attracted a massive $136.38 billion in foreign currency inflows through special schemes introduced by the Reserve Bank of India (RBI), providing a significant boost to the country’s foreign exchange reserves and strengthening its ability to manage pressure on the rupee.

The inflows were substantially higher than the $80 billion to $90 billion expected by economists and came after the RBI introduced measures in June to encourage stable dollar inflows.

The schemes were launched at a time when rising oil prices and supply disruptions linked to the US-Iran conflict were increasing concerns over India’s import bill and balance of payments.

A large majority of the funds came through a foreign-currency deposit programme aimed at India’s overseas diaspora. Indian banks mobilised $127.23 billion through non-resident foreign-currency deposits, according to RBI data.

In addition, banks raised $3.89 billion through external commercial borrowings and another $5.26 billion through overseas foreign-currency borrowings.

The scale of the inflows has surprised market participants. India has previously relied on its overseas diaspora during periods of currency pressure, offering incentives such as lower hedging costs to encourage dollar deposits.

A similar programme launched in 2013 had attracted around $26 billion, making the latest mobilisation significantly larger.

The RBI ended the diaspora-focused dollar deposit window on August 31, earlier than its originally scheduled closure at the end of September, following the strong response.

Market analysts said the large inflows should provide greater comfort to the central bank as it manages currency volatility.

Boost to India’s Forex Reserves

The dollars raised through the deposit scheme are swapped by banks with the central bank, helping add to India’s foreign exchange reserves.

India’s reserves had already reached a record $729.33 billion in the week ended August 21.

The additional dollar liquidity gives the RBI greater capacity to cushion the rupee against external pressures, including elevated crude oil prices and higher US Treasury yields.

Currency traders have also indicated that the central bank has increased dollar sales in recent days to support the Indian currency.

However, the surge in foreign currency deposits also creates future repayment obligations for the RBI. Much of the money raised through these programmes is locked in for periods of three to five years.

The RBI’s foreign exchange forward position, which reflects future liabilities, rose to a record $136.7 billion in July as foreign currency deposits increased.

Analysts have cautioned that while the inflows provide an immediate funding advantage, allowing them to expand without limits could create a concentrated repayment burden when the deposits mature.

The latest inflows nevertheless give India an important buffer at a time when global energy prices, geopolitical tensions and shifting US interest-rate expectations are putting pressure on emerging-market currencies.

For the RBI, the record mobilisation of foreign currency provides additional room to intervene in the market and manage excessive volatility in the rupee.