Bad News for India! Forex Reserves Fell by Rs 8.16 Trillion; Reserve Position with IMF Also Declined

India’s foreign exchange reserves took a significant hit recently, falling by approximately Rs 8,16,37,08,87,300 (roughly $9.3 billion) in the week ending August 1, 2025, according to the latest Reserve Bank of India (RBI) data. Alongside this steep decline in forex reserves, the reserve position with the International Monetary Fund (IMF) also dipped notably. This development is concerning for the nation’s economy and currency stability and warrants a closer look.

What Happened to India’s Forex Reserves?

India’s forex reserves declined sharply to about $688.87 billion during the week ending August 1, marking one of the largest weekly drops in recent years. The primary components contributing to this decline include:

• Foreign currency assets, which fell by around $7.3 billion to approximately $581.6 billion. These assets are a key part of forex reserves and fluctuate with currency valuations including the euro, pound, and yen held alongside the US dollar.

• Gold reserves decreased by about $1.7 billion, settling near $84 billion.

• Special Drawing Rights (SDRs) with the IMF dropped by $237 million to around $18.57 billion.

• The country’s reserve position with the IMF was reduced by $59 million to approximately $4.69 billion.

• India forex reserves fall

This steep fall follows after an all-time high in forex reserves of roughly $705 billion in September 2024, highlighting the volatility India’s reserves face amid global financial dynamics.

Why Did Forex Reserves Fall?

The significant dip in forex reserves can be attributed to several key factors:

1. Rupee Depreciation Pressure: The Indian rupee faced depreciation pressures during this period, hitting levels near or beyond 87 per US dollar. This decline in the rupee’s value requires the RBI to intervene and sell dollars from its reserves to stabilize the currency.

2. RBI Dollar Sales: To defend the rupee against sharp depreciation, the RBI sold close to $6.9 billion in the foreign exchange spot market. This intervention, while helping limit rupee losses, directly reduces forex reserves.

3. Valuation Losses: Currency fluctuations caused revaluation losses estimated at around $2.1 billion, particularly due to the depreciation of non-dollar currencies within the reserve basket.

4. Global Economic Uncertainties: Tariffs and trade tensions, such as a 25% tariff imposed by the US on Indian exports, have spooked foreign investors, causing capital outflows from Indian markets.

Impact on Economy and Currency

Such a significant drop in reserves can have multiple economic repercussions:

• Currency Stability: Forex reserves act as a buffer to support the rupee in foreign exchange markets. A decline restricts the RBI’s ability to control volatility and defend the currency.

• Import Payments: Reserves fund import requirements. Though India still retains substantial reserves to cover over 11 months of imports, rapid depletion can strain external trade.

• Investor Sentiment: Falling forex reserves may signal economic vulnerability, affecting foreign direct investment and portfolio inflows.

• Policy Response: The RBI may be forced to adjust monetary policies, including interest rates and currency interventions, to manage the declining reserves and currency depreciation.

RBI’s Role and Response

The Reserve Bank of India has been actively managing the reserves to curb excessive rupee depreciation and maintain external sector stability. The intervention in the spot and non-deliverable forward markets reflects RBI’s commitment to minimizing market disruptions despite the cost to its reserves.

Despite the fall, India’s forex reserves remain among the largest globally, positioning the country with reasonable external economic resilience. The RBI continues to monitor the situation closely and adjust policy measures accordingly.

What Does the Decline in IMF Reserve Position Mean?

India’s reserve position with the IMF represents a portion of the country’s foreign exchange resources held in the IMF. The recent decline by $59 million indicates a marginal reduction but is part of the broader movement in forex holdings amid global financial adjustments.

This change does not imply immediate risk but serves as an additional metric of India’s external financial posture.

Conclusion

The recent fall in India’s forex reserves by Rs 8.16 trillion and the decline in the reserve position with IMF reflect ongoing challenges including currency pressure, global economic fluctuations, and RBI market interventions. While the situation demands caution, India’s sizable reserves still provide a substantial buffer.