Key Highlights
- Indian Forex Reserve soars by $2.7 billion in the week ending July 25
- Foreign Currency Assets (FCAs) soared by $1.31 billion to $588.93 billion
- RBI continues to intervene in currency markets to prevent excessive rupee fluctuations
- According to experts, Trump’s 25% tariff could threaten Indian exports
India’s foreign exchange reserves surged by $2.7 billion in the week ending July 25, hitting a robust $698.19 billion, the Reserve Bank of India (RBI) reported on Friday.
The spike amid ongoing heat from US President Donald Trump is showing the central bank’s rigorous efforts to fortify the economy against global uncertainties while maintaining stability in the rupee.
What’s the Story Behind This Growth
According to the report, the rise primarily comes from foreign currency assets (FCAs), which soared by $1.31 billion to $588.93 billion.
FCAs, a key component of reserves, not only reflect just dollar holdings but also the fluctuating values of other major currencies like the euro, pound, and yen stashed away in the RBI’s coffers.
Gold reserves also played a major role, and jumped by $1.2 billion to $85.7 billion, which is a sign of the RBI’s strategic diversification.
Meanwhile, Special Drawing Rights (SDRs), the IMF’s reserve currency, climbed up by $126 million to $18.8 billion, while India’s reserve position with the IMF improved by $55 million to $4.75 billion.
RBI’s Balancing Act in Forex Markets
The central bank has been actively intervening in forex markets to counter excessive volatility in the rupee’s exchange rate.
However, RBI officials maintain that these moves are expected to ensure orderly market conditions rather than defending any particular rupee level.
This measured approach has helped India in countering global currency turbulence while keeping its reserves healthy.
FDI and FPI Inflows Show Strong Investor Sentiment
The latest RBI monthly report has also disclosed another encouraging trend. According to the report, foreign direct investment (FDI) into India surged to $8.8 billion in April 2025, up from $5.9 billion in March and $7.2 billion in April 2024.
Nearly half of these inflows were directed into manufacturing and business services, indicating growing confidence in India’s industrial and digital growth story.
India’s appeal as an investment hub has further increased its ranking as the world’s 16th-largest FDI destination.
Between 2020 and 2024, the country attracted a staggering $114 billion in greenfield investments in the digital economy, the highest among all developing nations.
Foreign portfolio investors (FPIs) also showed renewed enthusiasm, pumping in a net $1.7 billion into Indian equities in May 2025. This marks the third consecutive month of inflows.
Analysts attribute this optimism to a mix of domestic and global factors, including the India-Pakistan ceasefire, easing US-China trade tensions, and stronger-than-expected corporate earnings in Q4 of FY25.
What’s Next for India’s Forex Reserves?
With reserves inching closer to the $700 billion milestone, economists suggest that India is well-shielded against external shocks.
However, the RBI remains watchful, balancing liquidity management with the need to keep the rupee stable. As global investors continue to bet on India’s growth trajectory, the country’s forex reserves are likely to remain a key barometer of its economic resilience.
Will Donald Trump’s tariffs cripple the Indian economy
Amid the positive growth in India’s foreign exchange reserves, a significant financial threat looms over India, which could hinder its economic growth. This week, US President Donald Trump announced a 25% tariff on Indian imports, effective August 7, citing India’s purchases of Russian oil and military equipment as support for Russia in the ongoing Russia-Ukraine conflict.
“The tariff (and penalty) now proposed by the US is higher than what we had anticipated and is therefore likely to pose a headwind to India’s GDP growth. The extent of the downside will depend on the size of the penalties imposed,” Aditi Nayar, chief economist at ratings agency Icra, said.
However, there is a hope that the Indian government and the US government will finalize a bilateral trade agreement by fall 2025.
“While this move is unfortunate and will have a clear bearing on our exports, we hope that this imposition of higher tariffs will be a short-term phenomenon and that a permanent trade deal between the two sides will be finalised soon,” Mr Harsha Vardhan Agarwal, president of industry body FICCI, stated.
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