India’s forex reserves fall by $5.6 billion, remain near record high

India’s foreign exchange reserves declined by $5.62 billion to $689.73 billion in the week ended October 31, the Reserve Bank of India (RBI) said in its latest Weekly Statistical Supplement. The fall marked the second straight weekly decline, reversing the brief rise seen earlier in October.

The overall reserves remain near their historic peak of $704.89 billion recorded in September 2024, underlining the strength of India’s external balance despite global uncertainties and fluctuations in asset valuations.

Drop driven by fall in currency assets and gold holdings

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According to RBI data, India’s foreign currency assets – which make up the largest share of the forex reserves – slipped by $1.96 billion to $564.59 billion during the week. Gold holdings also fell by $3.81 billion to $101.73 billion, reflecting valuation changes amid volatile international gold prices.

Gold prices have been rising globally in recent months, supported by a shift towards safe-haven investments amid geopolitical tensions and a mixed outlook for global growth. However, the RBI’s data suggests that part of the decline in India’s gold reserves was due to currency revaluation effects rather than active sales.

RBI maintains strong import cover

After the recent monetary policy review, RBI Governor Sanjay Malhotra reaffirmed that the reserves remain more than adequate to meet India’s external obligations. “India’s foreign exchange reserves continue to provide a comfortable buffer, sufficient to cover over 11 months of merchandise imports,” he said.

The Reserve Bank of India has been keeping a close watch on the currency market in recent weeks. Officials have stepped in quietly whenever the rupee showed sharp swings, selling or buying dollars to keep movements orderly. The approach is not new - the RBI builds reserves when the rupee is steady and uses them when the currency faces pressure. The idea, as officials have often said, is not to fix a rate but to avoid sudden shocks.

A stronger position after three volatile years

India’s foreign exchange reserves have recovered ground after the wild swings seen in the past few years. The country added about $58 billion in 2023, more than making up for the $71 billion fall recorded in 2022. Another $20 billion came in 2024. So far this year, the reserves are up by around $40 billion, helped by steady capital inflows, remittances, and a broadly stable trade balance.

This slow but steady rise has given the RBI enough room to manage the currency without fear of running short. It has also added a layer of comfort at a time when many developing economies are still dealing with outflows and currency weakness.

What the reserves represent

The reserves are a mix of foreign currency assets, gold, and a small portion of special drawing rights with the International Monetary Fund. They are the financial safety net that allows the country to pay for imports, meet external debt, and manage sudden movements in global markets.

In practical terms, the RBI uses these holdings to smooth exchange rate movements. When demand for dollars rises sharply, it sells from its stock; when inflows strengthen the rupee, it adds to reserves. The approach is meant to keep the market calm rather than control the currency.

The recent dip in reserves is more a reflection of valuation changes than any policy shift. India’s foreign exchange cushion still covers more than 11 months of imports, a figure the RBI considers comfortable. With consistent inflows and a relatively stable balance of payments, officials see no reason for concern. The broader view within the financial establishment is that India’s external position remains among the strongest in the emerging world.