Foreign exchange reserves drop $22.5 billion on valuation losses
India's foreign exchange reserves fell by $22.5 billion in the April-June quarter of 2026, driven by valuation losses and capital outflows. The Reserve Bank of India reported that reserves contracted by $8.1 billion on a balance of payments basis.
Portfolio outflows compound valuation losses
Nominal foreign exchange reserves declined by $22.5 billion during April to June 2026, reversing an accretion of $29.8 billion recorded in the same period of 2025.
The Reserve Bank of India stated that valuation losses amounted to $14.4 billion, primarily reflecting lower gold prices and the appreciation of the US dollar against major global currencies.
On a balance of payments basis excluding valuation changes, reserves decreased by $8.1 billion, compared to an increase of $4.5 billion a year earlier.
The capital account turned negative at -$3.9 billion, weighed down by $9.6 billion in net portfolio outflows, even as foreign direct investment rose to $6.1 billion.
Commercial borrowing slows while banking capital rises
The current account deficit widened to $4.2 billion from $3.4 billion in the corresponding quarter of the previous year.
Within the capital account, external commercial borrowings fell to $1.0 billion from $5.5 billion in April to June 2025.
Conversely, banking capital inflows increased to $2.8 billion, supported by non-resident Indian deposits of $2.8 billion, while short-term credit contributed $3.5 billion.
Other capital account items posted net outflows of $8.1 billion.
A currency drag, not a balance sheet crisis
The steep contraction highlights how vulnerable nominal reserve buffers remain to global dollar swings and sudden portfolio exits.
Steady direct investment and resilient deposit inflows nevertheless demonstrate underlying stability in long-term external financing.
The central bank retains ample firepower despite the quarterly drawdown.