India’s foreign exchange reserves witnessed a moderate decline of $2.54 billion, falling to $635.72 billion in the week ended May 10, 2025. This dip comes amid a broad strengthening of the U.S. dollar globally. Interestingly, gold reserves increased during the same period, indicating shifts in the RBI’s asset composition strategy.
What Caused the Dip in Forex Reserves?
1. U.S. Dollar Strengthening
The primary reason for the fall in reserves is attributed to the appreciation of the U.S. dollar against major global currencies. As the dollar index climbed on the back of strong U.S. macroeconomic data and sticky inflation, the value of India’s non-dollar assets—such as the euro, yen, and pound—depreciated in dollar terms, leading to a notional decline in the reserves.
2. RBI’s Market Operations
Although not officially confirmed, analysts suggest that the RBI may have intervened in the forex market to stabilize the rupee amid volatility. Such interventions involve selling dollars, which can temporarily reduce forex reserves.
Gold Reserves Rise to $74.15 Billion
In a contrasting move, India’s gold reserves rose by $543 million to touch $74.15 billion, indicating:
A valuation gain due to rising international gold prices.
Possible additional gold purchases by the RBI as part of diversification.
Continued preference for safe-haven assets amid global uncertainty.
Gold now forms a more substantial part of the reserve composition, highlighting a hedging strategy by the central bank.
Latest Forex Reserve Breakdown (as of May 10, 2025)
| Component | Value (in $ Billion) |
|---|
| Total Forex Reserves | 635.72 |
| Foreign Currency Assets | 560.37 (approx.) |
| Gold Reserves | 74.15 |
| SDRs & IMF Reserves | Remaining balance |
Note: Detailed component-wise data from RBI’s weekly statistical supplement is awaited for precise splits.
Implications for Markets & Rupee
Rupee Outlook
The fall in reserves can put temporary pressure on the rupee, especially if global risk-off sentiment continues. However, at $635+ billion, the RBI holds enough buffer to manage volatility.
Bond and Equity Markets
A drop in reserves generally does not spook markets unless accompanied by capital flight. In this case, the rise in gold reserves and overall healthy reserve position offsets any major concern.
RBI’s Strategy: Stability First
The Reserve Bank of India continues to prioritize:
Rupee stability over level targeting
Diversification of reserves (more gold, better returns)
Defensive interventions when needed
The slight fall in forex reserves should be viewed as a routine adjustment rather than a red flag.
Conclusion
India’s forex reserves dipped $2.54 billion to $635.72 billion last week, driven largely by currency revaluation effects due to a stronger U.S. dollar. However, a rise in gold reserves signals strategic portfolio balancing by the RBI. With global uncertainty persisting, the central bank remains well-equipped to manage external shocks.
Written by Indira Securities SEBI Registered with 30 plus years of experience in Stock Market