Highest Forex Sales by RBI in FY25

Prelims: Economic and Social Development| Current events of national and international importance.

Why in news?

The Reserve Bank of India sold a record $398.71 billion of foreign currency in 2024-25 on a gross basis as the Indian central bank stepped up its defence of the rupee amid a volatile global environment.

• Foreign Exchange Reserves – They are external assets held by a country’s central bank.
• These typically include:
  1. Foreign currency assets (FCA) like U.S. Treasury securities,
  2. Gold reserves,
  3. Special Drawing Rights (SDRs) from the IMF,
  4. Reserve Tranche Position in the IMF.
• The Reserve Bank of India (RBI) manages India’s forex reserves on behalf of the Government of India.
• Management falls under RBI’s broader mandate of maintaining monetary and financial stability, particularly exchange rate stability.

Importance of Forex Reserves

• Currency stability – To stabilize the rupee against excessive volatility in forex markets.
• Crisis buffer – To provide a cushion against external shocks, such as oil price spikes or geopolitical instability.
• Investor confidence – High reserves boost global investor confidence in India’s macroeconomic health.
• Debt management – To help in managing and servicing foreign debt obligations.
• Import cover – To ensure sufficient import cover, typically desirable to be at least 6 months of imports.

• Current forex reserve – At the end of FY25 (March 2025), India’s total foreign exchange reserves stood at just under $625 billion.
• For the FY25 with net forex sales of $34.51 billion.
• This was the second-highest net annual sale since FY09 ($34.92 billion) during the global financial crisis.
• It marks only the seventh time in 30 years that RBI sold more than it bought.
• This is mainly due to weakening rupee in second half of FY25 which dropped to all-time low of Rs 87.95/USD in February 2025.

In December 2024, RBI allowed banks to raise interest rates on FCNR deposits by 150 basis points to attract dollar deposits from NRIs.

FCNR (Foreign Currency Non-Resident) deposit is a type of term deposit account offered by Indian banks to NRIs.

Reference

The Indian Express| RBI sold nearly $400 billion of Forex in FY25