MUMBAI, Aug 5 (Reuters) - India's foreign exchange reserves rose to a near three-month high of $692.9 billion as of July 31, data from the Reserve Bank of India showed on Wednesday.
Reserves jumped nearly $10.5 billion compared to the previous week, in their biggest surge since the week ended January 30.
A larger pile of foreign exchange reserves gives the central bank greater capacity to defend the rupee, which has been hit by oil price volatility generated by the U.S.-Israeli war with Iran, clouding India's macroeconomic outlook.
Traders said the sharp increase in the size of reserves can be attributed to dollar inflows from a foreign-currency deposit drive launched by the RBI in June to bolster the country's balance of payments. The RBI has received $36.7 billion via Foreign Currency Non-Resident deposits raised by banks through July 31.
"As flows from the FCNR scheme have gained pace, we expect the headline FX reserve figure to cross $700 billion in coming weeks, and it will also help the RBI to reduce its short FX book," said Dhaval Shah, founder and managing director, De-Risk Forex Consultancy.
"The bigger picture will continue to favor rupee appreciation."
Lenders are permitted to swap these foreign currency deposits with the central bank under a zero-cost hedging facility open until the end of September.
"India's foreign exchange reserves continue to be adequate in terms of the standard metrics of reserve adequacy with import cover of over 10 months and external debt cover of 90.8%," RBI Governor Sanjay Malhotra said while delivering his monetary policy address in Mumbai.
The RBI maintained status quo on rates on Wednesday, in line with expectations.
In the week to which the data pertains, the rupee jumped 1.2% to 95.38 per dollar, its biggest weekly jump in four months.
Reporting by Dharamraj Dhutia; Editing by Ronojoy Mazumdar
Source: Reuters