India’s foreign exchange reserves were reported to have declined slightly to $691.5 billion as of May 30, according to a statement delivered by the Governor of the Reserve Bank of India (RBI) during the latest monetary policy announcement. The figure represented a drop of $1.2 billion from the previous week, moving the total slightly below the near eight-month peak that had recently been achieved. Despite the decrease, the reserves were still viewed as robust by policymakers and market analysts alike.
It was noted that India’s foreign exchange reserves remained approximately $13.4 billion below the all-time high that had been recorded in September 2024. Nevertheless, the overall position continued to be regarded as strong, providing the country with a significant buffer against external shocks. Governor Sanjay Malhotra indicated in his statement that the reserves were sufficient to cover over 11 months of projected goods imports and about 96% of the nation’s total outstanding external debt—figures that were considered indicators of sound macroeconomic health.
The marginal dip in reserves was attributed to a combination of currency movements and market dynamics. It was explained that changes in the value of foreign currency assets, which form a substantial portion of the reserves, are often influenced by the appreciation or depreciation of other major global currencies relative to the U.S. dollar. Since the reserves are expressed in dollar terms, fluctuations in the value of the euro, yen, or pound, for instance, can lead to notional changes even when actual asset holdings remain unchanged.
During the week ending May 30, the Indian rupee had experienced renewed pressure, ending the week slightly weaker amid rising concerns over U.S. trade policy, particularly potential tariffs. Though the rupee had briefly appreciated to a six-month high earlier in May, much of that gain had been erased by the end of the month, with the currency trading largely flat at around 85.8050 per U.S. dollar by Friday.
Adding further complexity to the currency landscape was the RBI’s monetary policy action, which was characterized by an unexpectedly aggressive stance. The central bank opted to cut its key repo rate by 50 basis points, a deeper reduction than markets had anticipated. This marked the third consecutive rate cut in recent months. In tandem with this move, the RBI also announced a reduction in the cash reserve ratio (CRR) for banks, a step aimed at releasing additional liquidity into the banking system and stimulating domestic demand.
The dual policy action—lowering both the repo rate and CRR—was seen as a strong signal of the central bank’s commitment to supporting economic growth amid lingering global uncertainty. However, it also had the effect of increasing downward pressure on the rupee, as lower interest rates tend to reduce the attractiveness of holding assets denominated in the local currency.
Analysts remarked that, while the decline in reserves and the modest weakening of the rupee were not causes for immediate concern, they would likely be closely watched in the coming weeks. External factors such as oil prices, geopolitical tensions, and shifts in global investor sentiment were expected to remain key influences on India’s foreign exchange position. In addition, any significant change in the U.S. Federal Reserve’s interest rate policy could also affect capital flows into emerging markets, including India.
It was also pointed out that India’s foreign exchange reserves include more than just foreign currency assets. They also comprise holdings such as gold, special drawing rights (SDRs) from the International Monetary Fund (IMF), and the country’s reserve tranche position with the IMF. These components collectively contribute to the overall strength and flexibility of the reserve structure, offering a multi-layered cushion against sudden external disruptions.
Despite the weekly dip, the broader outlook on India’s forex reserves remained stable. Economic policymakers continued to emphasize the importance of maintaining healthy reserve levels to preserve financial market confidence and ensure resilience in times of external stress. The reserves were seen not only as a shield against potential balance of payments pressures but also as a strategic tool for currency management and macroeconomic stability.
As global market conditions evolve, and with India entering a new monetary phase marked by rate adjustments and external volatility, the interplay between forex reserves, currency movement, and central bank policy was expected to remain at the forefront of economic discourse.
