Record foreign exchange reserves boost RBI’s firepower to shield rupee

The broad increase in gold prices have helped prop up the reserves.

India’s foreign exchange reserves climbed to a record, bolstering the country’s ability to shield the rupee from excessive volatility and speculation.

The stockpile rose by about $8.05 billion to $709.4 billion in the week ended Jan. 23, according to data released by the Reserve Bank of India on Friday. That beats a previous high of $704.89 billion set in September 2024.

A larger reserve buffer gives the central bank more firepower to defend the rupee. The currency is the worst performer in emerging markets this year, weighed down by outflows from equities and a delay in clinching a trade deal with the US.

The broad increase in gold prices have helped prop up the reserves. The precious metal is set for its best monthly gain since 1982 this month, rising around 18% on the back of geopolitical tensions.

“The latest rise in the reserves reflects a positive valuation effect from gold, but it also gives the RBI breathing space in an uncertain global environment,” said Anubhuti Sahay, Head of India Economic Research, Standard Chartered Bank.

“Going ahead, however, key variables are the size of the RBI’s short forward dollar book as well as lack of visibility of how much more it can build up reserves in an environment of pressure on the rupee,” she added.