India forex reserves hit record $729.3 billion in week ended Aug 21
Synopsis
India's forex reserves have hit an all-time high of $729.3 billion — but the record comes with a catch. The RBI's overseas deposit drive drew $72.8 billion in inflows, yet the annual carry cost of the programme is estimated at $5.7 billion, raising pointed questions about whether the buffer was built at too high a price.
Key Takeaways
India's forex reserves reached a record $729.3 billion in the week ended 21 August , up $12.4 billion week-on-week.
The previous record of $728.5 billion was set in February .
A special RBI overseas deposit programme launched in June attracted cumulative inflows of $72.8 billion through 21 August .
RBI Governor Sanjay Malhotra advanced the programme's closure, citing stronger-than-expected inflows.
The annual carry cost of the scheme is estimated at around $5.7 billion , with the RBI absorbing banks' hedging costs.
The rupee has recovered 1.7% from its record low in May but remains under pressure from elevated crude oil prices.
India's foreign exchange reserves climbed to a record high of $729.3 billion in the week ended 21 August, the Reserve Bank of India (RBI) confirmed on Friday, 28 August. The surge — driven by strong overseas capital inflows — hands the central bank significantly greater capacity to defend the rupee against elevated crude oil prices and persistent global economic uncertainty.
Key Developments
According to data released by the RBI, reserves rose by $12.4 billion during the week, surpassing the previous record of $728.5 billion set in February. The milestone cements India's position among the world's largest holders of foreign exchange, reinforcing its external buffers at a time when emerging-market currencies remain broadly under pressure.
What Drove the Surge
The sharp build-up has been underpinned by a special overseas deposit programme introduced by the RBI in June, targeting non-resident Indians and other overseas customers. The initiative has attracted cumulative inflows of approximately $72.8 billion through 21 August, substantially strengthening India's external account. The programme was designed, in part, to reduce the risk of a third consecutive annual deficit in the country's broadest measure of capital flows. Notably, RBI Governor Sanjay Malhotra unexpectedly advanced the closure of the programme earlier this month, citing inflows that had exceeded expectations.
The Hidden Cost
The strategy, however, carries a significant price tag for the central bank. Under the diaspora deposit scheme, the RBI absorbs the hedging costs incurred by banks, enabling lenders to offer more competitive interest rates to overseas depositors. Analysts have flagged that the dollars raised are typically deployed in relatively low-yielding assets, creating a structural 'carry cost' for the country. With US interest rates remaining well above the levels prevailing in 2013 — the last time the RBI mounted a comparable overseas deposit drive — the cost of this round is considerably steeper. Estimates cited in financial analysis put the annual carry cost at around $5.7 billion.
Rupee Outlook and RBI Firepower
The rupee has recovered approximately 1.7% from its record low touched in May, but analysts caution that the currency remains vulnerable, particularly given India's heavy dependence on imported crude oil. The expanded reserve buffer gives the RBI greater latitude to intervene in the foreign exchange market and absorb volatility without drawing down reserves to uncomfortable levels. This is the second time in less than a year that India's forex chest has set a fresh record, underscoring the central bank's deliberate effort to build a larger external cushion.
What Comes Next
With the special deposit window now closed, the pace of reserve accumulation is expected to moderate. Market participants will watch whether the RBI can sustain the buffer through conventional inflows — foreign direct investment, portfolio equity, and services exports — without resorting to another high-cost deposit programme. The trajectory of US Federal Reserve policy and global crude prices will remain the two dominant variables shaping the rupee and, by extension, the reserves outlook in the months ahead.
Point of View
But the cost of manufacturing it deserves equal scrutiny. The RBI is bearing hedging costs that analysts estimate at $5.7 billion annually — a steep price when the dollars raised are invested in low-yielding assets. This is structurally identical to the 2013 playbook, except US rates are now far higher, making the carry burden heavier. The central bank has bought external stability, but the bill will show up on its balance sheet. Whether that trade-off was worth it depends on how long the rupee stays under pressure — and whether the buffer can be maintained through organic inflows once the deposit window is shut.
NationPress
28 Aug 2026
Frequently Asked Questions
What is India's current forex reserve level?
India's foreign exchange reserves reached a record high of $729.3 billion in the week ended 21 August, according to data released by the RBI on 28 August. This surpassed the previous record of $728.5 billion set in February.
What drove the surge in India's forex reserves?
The rise was primarily driven by a special overseas deposit programme launched by the RBI in June, targeting non-resident Indians and overseas customers. The scheme attracted cumulative inflows of approximately $72.8 billion through 21 August.
What is the cost of the RBI's overseas deposit programme?
The RBI is absorbing the hedging costs of banks under the scheme, enabling them to offer attractive rates to overseas depositors. The annual carry cost of this arrangement is estimated at around $5.7 billion, as the dollars raised are typically invested in lower-yielding assets.
Why has the RBI closed the special deposit programme early?
RBI Governor Sanjay Malhotra advanced the programme's closure earlier in August, stating that inflows had been stronger than anticipated. The programme had already met its objective of shoring up the external position.
How does the record reserve level help the rupee?
A larger reserve buffer gives the RBI greater capacity to intervene in the foreign exchange market and cushion the rupee against volatility. The rupee has recovered about 1.7% from its record low in May, though it remains under pressure from high crude oil prices and India's dependence on imported fuel.
