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In the sharpest rise in over two years, India's foreign exchange (forex) reserves increased by $15.267 billion, reaching $653.966 billion for the week ending March 7, 2025, according to data released by the Reserve Bank of India (RBI).
This comes after a decline of $1.781 billion in the previous week, when reserves stood at $638.698 billion.
What Led to the Sharp Jump in Forex Reserves?
The surge in forex reserves is primarily attributed to the $10 billion forex swap conducted by the RBI on February 28. In this operation, the central bank purchased dollars against the rupee to inject liquidity into the banking system.
Forex reserves had been on a declining trend due to RBI’s interventions in the forex market to stabilize the rupee and manage external volatility.
Despite the increase, the reserves are still below the all-time high of $704.885 billion recorded in September 2024.
Breakdown of Forex Reserves (Week Ending March 7, 2025)
Foreign Currency Assets (FCA): Increased by $13.993 billion to $557.282 billion
Gold Reserves: Declined by $1.053 billion to $74.325 billion
Special Drawing Rights (SDRs): Rose by $212 million to $18.21 billion
India’s Reserve Position with IMF: Fell by $69 million to $4.148 billion
Note: Foreign currency assets (FCA) include the impact of fluctuations in non-US currencies such as the euro, pound, and yen, as they are held within India's forex reserves.
Why Do Forex Reserves Matter?
Support for the Rupee: Higher reserves help the RBI manage volatility in the foreign exchange market and prevent excessive fluctuations in the rupee’s value.
Economic Stability: Strong forex reserves provide a buffer against external shocks, such as global financial crises, oil price fluctuations, and geopolitical risks.
Import Cover: India’s reserves act as a safety net, ensuring that the country can cover imports and repay foreign debt even in uncertain times.
The $15.27 billion surge in forex reserves signals strong external liquidity for India. However, factors like global economic trends, US Fed policies, and RBI's future interventions will determine how these reserves fluctuate in the coming months.
