India’s US Treasury purchases surge to $15.2 billion in July, highest holdings in 10 months

India bought a record amount of Treasuries in July, helped by large inflows under the central bank’s special facilities to draw overseas capital.

The nation’s net purchase of US notes jumped to $15.2 billion, from $3.39 billion in June, taking its holding to the highest in 10 months, according to latest data from the US Department of the Treasury.

The surge in purchases follows inflows of $40.8 billion through the end of July under the Reserve Bank of India’s special window announced in early June. The central bank offered concessional swaps on funds raised through diaspora deposits and overseas borrowings. The flows beat expectations, with India’s foreign-exchange reserves swelling to an all-time high.

As the swaps created dollar-denominated liabilities for the RBI, the central bank would have invested the funds in dollar assets, said Vivek Rajpal, Asia strategist at JB Drax Honore in Singapore.

Investing some of those dollars in Treasuries allows the RBI to earn carry, helping offset the cost of the measures, Rajpal said. He expects Treasury purchases to remain elevated given the continued rise in India’s reserves in August as total inflows under the RBI facility soared to $136 billion.