India’s foreign exchange reserves rose by $4.37 billion to about $693.32 billion last week, the Reserve Bank of India (RBI) reported, bringing reserves close to their record high and underlining the country’s strengthened external financial position amid continued global uncertainty.
Broad-based gains drove the increase
The uptick was driven by gains across multiple reserve components, chiefly foreign currency assets (FCAs) and gold holdings. Over recent weeks, a steady upward trend in reserves has bolstered confidence in India’s macroeconomic fundamentals and its ability to withstand external shocks.
Foreign currency assets: the main contributor
FCAs, which constitute the largest share of India’s reserves and are denominated in major currencies such as the US dollar, euro, pound sterling and yen, accounted for a significant portion of the rise. The increase reflects higher capital inflows, valuation gains on existing holdings and measured interventions by the RBI to manage rupee volatility.
A healthy level of FCAs equips the central bank to smooth sharp exchange rate movements and ensures the uninterrupted settlement of international trade, an important consideration for India given its dependence on imports of crude oil, electronics and capital goods.
Gold holdings strengthen the reserve profile
Gold emerged as another notable contributor, with the value of India’s gold reserves rising and pushing total gold holdings to well above $110 billion. Central banks globally have been increasing gold exposure as a hedge against inflation, currency risk and geopolitical uncertainty.
For India, larger gold reserves enhance portfolio diversification and serve as a strategic buffer that can support financial stability during periods of market stress. The RBI’s steady accumulation of gold signals a cautious, balanced approach to reserve management.
SDRs and IMF position see modest gains
Special Drawing Rights (SDRs) and India’s reserve position with the International Monetary Fund also registered small increases in the latest week. While smaller in absolute terms compared with FCAs and gold, these components add an additional layer of international liquidity that can be accessed if needed.
Why rising reserves matter
Elevated foreign exchange reserves are a critical policy tool for cushioning the economy against external disruptions such as sudden capital outflows, commodity price shocks or international financial turbulence. They give the RBI room to intervene in currency markets to limit excessive rupee volatility and to safeguard external payment obligations.
From an investor and rating‑agency perspective, growing reserves signal macroeconomic resilience and strengthen confidence in India’s ability to meet short‑term external liabilities.
Outlook
With reserves near record levels, India is better positioned to navigate global headwinds including shifting interest rate dynamics, geopolitical tensions and uneven growth in advanced economies. Going forward, capital flow movements, global commodity prices and currency valuations will determine the path of reserve accumulation, but current buffers provide meaningful protection for the economy.
