India’s foreign exchange reserves drop by $6.93 billion to $695.36 billion
India’s foreign exchange reserves fell by USD 6.93 billion to USD 695.36 billion for the week ended October 24, according to data from the Reserve Bank of India (RBI).
While the decline may seem concerning, analysts call the overall outlook largely positive, as the reserves remain near a record high of USD 704.9 billion, reflecting India’s strong external financial position.
What are forex reserves and why they matter
Foreign exchange (forex) reserves are assets held by the RBI in foreign currencies, gold, and Special Drawing Rights (SDRs) with the International Monetary Fund (IMF).
They are mostly held in US dollars, the world’s dominant currency, along with the euro, pound sterling, and yen.
These reserves act as a financial safety net, they help stabilize the rupee, pay for imports, meet debt obligations, and build investor confidence during global uncertainty.
How the RBI builds its reserves
The RBI accumulates reserves by purchasing foreign currency from exporters and investors, attracting foreign direct investment (FDI) and portfolio inflows, and through returns on overseas assets held with international banks.
When the RBI buys dollars, it pays in rupees, which can expand domestic money supply and influence inflation if not carefully managed.
Breakdown of the weekly decline
• Foreign currency assets: down USD 3.86 billion to USD 566.55 billion
• Gold holdings: down USD 3.01 billion to USD 105.53 billion
• SDRs: dipped USD 58 million to USD 18.66 billion
• IMF reserve position: up USD 6 million to USD 4.61 billion
Why the reserves fell this week
Experts say the dip was driven by a mix of global valuation effects and domestic interventions
• A stronger US dollar: The dollar has risen sharply as US interest rates remain high. This makes other currencies lose value in dollar terms, reducing India’s reserves when measured in USD.
• RBI’s rupee support: The RBI likely sold dollars to prevent sharp depreciation of the rupee, which has been trading near ₹84 per dollar.
• Falling gold prices: A decline in global gold prices reduced the dollar value of India’s gold reserves.
• Foreign outflows and oil payments: Recent foreign portfolio outflows and large oil import settlements also contributed to the decline.
Despite the fall, the reserves remain healthy and adequate to cover more than 10 months of imports, well above the IMF’s recommended level of three months.
Pros and Cons of high reserves
A large reserve cushion strengthens India’s ability to handle external shocks, currency volatility, and debt repayments.
However, there are side effects, returns on these reserves are low, since they are invested in safe but low-yield assets like US Treasury bonds.
Additionally, rapid reserve accumulation can lead to excess liquidity, which may fuel inflation unless the RBI absorbs it through monetary operations.
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India’s experience mirrors global trends.
• China’s reserves, at USD 3.2 trillion, have slipped slightly as the People’s Bank of China intervenes to support the yuan.
• Japan, holding USD 1.25 trillion, has also seen declines after the yen hit a 38-year low, prompting large-scale dollar sales.
• Switzerland and Saudi Arabia reported minor drops due to valuation losses and lower oil receipts, while Russia’s reserves remain stable but partly frozen by sanctions.
• Only the United States, whose own currency is the world’s reserve standard, is largely unaffected.
Globally, most central banks are dealing with a strong US dollar, capital outflows toward higher-yield US assets, and interventions to protect domestic currencies.
India’s position remains strong
Compared with China or Japan, India’s reserve management is remarkably stable. The rupee’s movement has been gradual, and the RBI’s cautious interventions have prevented sharp depreciation without draining reserves.
India still ranks among the top five holders of forex reserves, offering one of the world’s strongest buffers against economic shocks.
Economists believe the RBI will continue balancing interventions with interest-rate adjustments and liquidity control to maintain price stability. A steady rupee helps curb import-driven inflation, ensuring that India’s currency and economy remain resilient.