Foreign reserves, also called foreign exchange reserves or forex reserves, are the assets held by the Reserve Bank of India (RBI) in foreign currencies — primarily US dollars — along with gold, Special Drawing Rights (SDRs), and the reserve position at the International Monetary Fund (IMF). India's foreign exchange reserves serve multiple purposes: supporting the rupee's exchange rate stability, providing a buffer against external payment obligations, maintaining investor confidence in India's external sector, and enabling the RBI to intervene in currency markets to smooth excessive rupee volatility. As of 2025, India's foreign exchange reserves are among the largest in the world, providing import cover of approximately 10 to 11 months. Declining foreign reserves — typically caused by RBI intervention to defend the rupee or capital outflows by foreign institutional investors — signal potential currency weakness and are closely monitored by bond and equity markets.
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