India becomes world's fourth-largest forex reserve holder on higher FCNR B deposit mobilisation

India has become the fourth largest holder of foreign exchange reserves in the world after the record surge in dollar inflows triggered by the Reserve Bank of Indiarsquos RBIrsquos foreign currency nonresident bank FCNRB deposits scheme according to dataWith the USD 449 billion increase in its forex kitty to a record USD 7857 billion during the week ended September 4 India has dislodged Russia from the fourth spot and is now ranked only behind China Japan and Switzerland the data compiled by Bloomberg showedThe record increase in the foreign exchange reserves has taken place despite a decline in the gold reserves component by USD 259 billion to USD 11381 billion during the week as gold prices fellAn increase in the foreign exchange reserves reflects strong fundamentals of the economy and gives the Reserve Bank of India RBI more headroom to stabilise the rupee when it turns volatileA strong forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fallMeanwhile the RBI has announced a Rs 1 lakh crore open market operation OMO sale of government bonds to mop up the excess liquidity in the banking system that has resulted from the strong inflow of foreign currencyThe RBI will sell government securities worth Rs 1 lakh crore in three tranches mdash Rs 50000 crore on September 17 Rs 25000 crore on September 21 and another Rs 25000 crore on September 28 The auctions will be conducted through the multipleprice method using a multisecurity auctionEarlier the Reserve Bank had raised over Rs 353 lakh crore through an overnight Variable Rate Reverse Repo VRRR auction with a 1day tenor on Monday to absorb surplus cash from the banking systemA VRRR auction is a monetary policy tool used by a central bank to absorb excess cash from the banking system and ensure financial stability in the economyThe RBI has stepped up liquidity absorption operations as the banking system has been flooded with funds following large inflows through the special FCNRB deposit schemeRBIs special dollarrupee forex swap facility for FCNRB deposits Overseas Foreign Currency Borrowings OFCB and External Commercial Borrowings ECB launched on June 8 this year has driven an unprecedented surge in foreign exchange inflows into the country to the tune of USD 73 billion in less than 11 weeks of the launchThe response was strong enough for the RBI to advance the closure of the FCNRB window itself from September 30 to August 31 having already achieved its objective ahead of scheduleThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever