India’s forex reserves fell by $2.06 billion to $686.06 billion for the week ended 2nd May 2025, which was the first decrease after eight consecutive weeks of growth. According to the Reserve Bank of India (RBI) data, the central bank is likely intervening in the market following sustained pressure on the Indian Rupee (INR).
Reserve levels had been steadily increasing over the last 8 weeks until the week ended 25th April, when the total was $688.129 billion, supported by favorable capital inflows and valuation gains. The recent decline was related to dollar sales by the RBI in defense of the rupee, which is currently trading close to it’s historical low against the US dollar.
RBI Intervenes as Rupee Slides Toward Record Low
During the reporting week, foreign currency assets (FCAs), which make up the largest class of forex reserves, grew by $514 million to $581.177 billion. FCAs measure the value of currencies from around the world, such as the Euro, Pound, and Yen in dollar terms. The overall decrease in total reserves was due to the falling value of both gold and Special Drawing Rights (SDRs).
Gold reserves decreased by $2.545 million to a total value of $81.82 billion. Meanwhile, SDRs, which are held as international reserve assets with the International Monetary Fund (IMF), fell by $30 million while still standing at $18.558 billion. The combination of these numbers offset the increase in FCAs and accounted for the net decrease in reserves.
Forex Reserves Still Robust Despite Weekly Decline
Even with last week’s dip, India has huge forex reserves and remains one of the world’s most resilient economies against external shocks. The RBI estimates reserves are at a level to cover 10-12 months’ worth of projected imports, but import coverage is just one measure to look at with overall macroeconomic stability.
In 2023, India increased its reserves by $58 billion, recovering well after the $71 billion drop in 2022, which was caused by global monetary tightening and high crude oil prices. In 2024, reserves increased a further $20 billion, demonstrating consistency as the economy developed better capital flows and some exporting recovery.
The most recent movements in reserves demonstrate considerable activity in liquidity management by the RBI. Additionally, with the rupee continuing to come under pressure from a stronger US dollar and global geopolitical tensions, the bank continues to navigate between inflation control, liquidity, as well as rupee stabilization.
Volatility Ahead as Global Uncertainty Persists
Economists have suggested it is likely that a high level of volatility in the foreign exchange market will persist. The rupee’s depreciation relates to multiple global headwinds, including a strong dollar regime; and continued geopolitical risks, particularly regarding the leading central banks of the world and their decisions regarding interest rate responses, most notably the Federal Reserve.
Nevertheless, expectations of India’s large reserve buffer, foreign inflows, and low current account deficit are expected to provide enough support for macroeconomic stability overall. The position of the Reserve Bank of India (RBI) to hold the line on cautious intervention and prudent reserve management strategy will be important in navigating near-term uncertainty. While declines in reserves may be shockingly alarming, if we consider them a tactical approach, we can contextualize their importance in the evolving economic picture.
About The Author
