India’s Forex Reserves Fall to Over One-Year Low Amid Rupee Free Fall
RBI Burns Through Dollar Reserves to Defend Rupee as Global Turmoil Deepens
India’s foreign exchange reserves have fallen to their lowest level in more than a year as the Reserve Bank of India (RBI) intensified efforts to shield the rupee from sharp depreciation triggered by global geopolitical tensions, rising crude oil prices, and persistent capital outflows. According to the latest RBI data, India’s forex reserves dropped by $7.5 billion to $681.4 billion for the week ending May 22, marking one of the steepest recent weekly declines.
The decline comes amid a turbulent period for the Indian currency. The rupee recently plunged to a historic low near 96.96 against the U.S. dollar before recovering partially after aggressive intervention by the central bank. Market participants believe the RBI has been selling dollars from its reserves in both spot and forward markets to prevent a disorderly fall in the currency.
What Triggered the Fall?
The primary catalyst has been the escalating conflict involving Iran and the broader instability in West Asia, which has pushed global crude oil prices sharply higher. Since India imports the majority of its energy requirements, rising oil prices increase the country’s import bill, boost demand for dollars, and exert downward pressure on the rupee.
At the same time, foreign investors have been moving money toward safer assets amid global uncertainty, strengthening the U.S. dollar and weakening emerging-market currencies, including the Indian rupee. Analysts say these combined pressures forced the RBI to intervene heavily in currency markets.
Reserves Shrinking From Record Highs
India’s forex reserves had touched an all-time high of about $728.5 billion in late February 2026. Since then, reserves have steadily declined as the central bank sold dollars to stabilize the currency. Recent data indicates that foreign currency assets, the largest component of reserves, have fallen significantly, while gold reserves have also witnessed valuation-related declines.
The latest figures show:
- Total forex reserves: $681.4 billion
- Foreign currency assets: $543 billion
- Gold reserves: Lower by approximately $4.5 billion during the reporting week
- SDRs and IMF reserve position also recorded marginal declines.
Is India Facing a Forex Crisis?
Economists largely believe India is not facing a balance-of-payments crisis. Despite the decline, reserves remain substantial and provide several months of import cover. However, the rapid pace of depletion has raised concerns about how long the RBI can continue defending the rupee if geopolitical tensions intensify further.
The RBI itself has acknowledged risks arising from the West Asia conflict, volatile oil prices, widening trade deficits, and currency-market instability. The central bank has indicated it will continue monitoring the situation closely and intervene whenever necessary to maintain orderly market conditions.
What Happens Next?
Financial markets are now closely watching crude oil prices, foreign investment flows, and upcoming RBI policy decisions. While the central bank has so far managed to prevent a deeper currency collapse, analysts warn that sustained geopolitical tensions could keep pressure on both the rupee and India’s forex reserves in the coming months. Some economists have even begun discussing the possibility of the rupee approaching the psychologically significant ₹100-per-dollar level if external shocks worsen.
For now, India’s foreign exchange reserves remain one of the strongest buffers among emerging economies. Yet the latest data highlights a growing challenge for policymakers: balancing currency stability, inflation control, and economic growth in an increasingly uncertain global environment.
