Biggest Weekly Decline of the Year

India’s foreign exchange reserves recorded their steepest fall of 2025, tumbling by $9.32 billion to $688.87 billion in the week ending 1 August 2025, according to the latest Reserve Bank of India (RBI) data.The decline was primarily led by a $7.32 billion drop in foreign currency assets, bringing them down to $581.61 billion, while gold reserves fell by $1.706 billion to $83.99 billion. Special Drawing Rights (SDRs) slipped by $237 million to $18.57 billion, and the IMF reserve position edged lower by $59 million to $4.69 billion.

RBI Steps In to Defend the Rupee

Analysts attribute the sharp fall to the RBI’s aggressive U.S. dollar sales in the currency market to prevent a steep rupee depreciation. The Indian currency has been under pressure due to escalating U.S. tariffs, global risk aversion, and persistent foreign capital outflows.Such interventions are aimed at curbing excessive volatility and maintaining market confidence, even if it means drawing down reserves.

Strong External Buffers Remain

Despite the record weekly fall, India’s reserves remain among the largest globally, offering robust protection against external shocks, import financing needs, and sudden capital flight. Current levels cover about 11 months of merchandise imports, well above the comfort threshold followed by most emerging economies.

Market Outlook

The immediate market reaction is expected to be measured, as the sizeable reserve stockpile reassures investors about India’s external stability. However, if global trade tensions intensify and capital outflows persist, the RBI may need to continue intervening, potentially leading to further reserve erosion in the coming weeks.