Gold Surge, FX Swaps Lift India’s Forex Reserves to Record High

India’s foreign exchange reserves climbed to an all-time high of $709 billion in the week ending January 23, driven largely by a sharp rally in gold prices and strategic currency swap operations by the Reserve Bank of India. The reserves increased by $8 billion week-on-week, with nearly 70% of the rise attributed to the higher valuation of gold holdings. The surge strengthens the central bank’s capacity to manage rupee volatility at a time of capital outflows and persistent global trade tensions.

Foreign exchange reserves remain a critical buffer for India, which runs a current account deficit and faces periodic currency pressure. The rupee has been under strain in recent months, recently slipping to a record low of 91.9850 against the U.S. dollar. Since U.S. tariff measures intensified last August, the rupee has weakened around 5%, compounded by equity outflows. Despite this, reserves have expanded by roughly $25 billion during the same period, even as the central bank intervened regularly to ensure an orderly pace of depreciation.

A key factor behind the resilience in reserve levels has been the RBI’s use of USD-INR buy/sell swaps, which offset the liquidity impact of spot dollar sales. Since late 2025, swap operations totaling at least $25 billion have been conducted, with another $10 billion auction scheduled. The central bank held about 28.3 million troy ounces of gold at the end of December, benefiting from record-high bullion prices. According to Madan Sabanvis, chief economist at Bank of Baroda, both rising gold valuations and FX swap activity have driven the increase, though reserves could moderate as swap positions mature.

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