India’s forex reserves hit $654 billion to record biggest weekly gain in 3 years driven by RBI’s liquidity boost

India’s dollar stockpile had its biggest weekly gain in over three years, bolstered by the Reserve Bank of India (RBI)'s currency swap operations and liquidity boost last month. India's foreign exchange (forex) reserves increased by nearly $15.3 billion to hit nearly $654 billion in the week to March 7, 2025. According to Bloomberg data, that is the highest weekly gain since August 27, 2021.

This comes after the RBI injected $10 billion through a foreign-exchange swap auction on February 28, stepping up efforts to ease a crunch in the financial system. The swap entails the central bank purchasing dollars from banks against the rupees they hold, while contracting to sell the greenback at a future date.

Also Read: RBI to conduct OMO purchase auctions, rupee-dollar swaps worth ₹1.9 trillion for India’s liquidity boost

RBI liquidity boost

RBI injected $10 billion through a currency or foreign-exchange swap auction on February 28, stepping up efforts to ease one of the worst liquidity deficits to hit the country's financial system. According to Bloomberg, the infusion takes the amount poured into the banking system to $47 billion in February. It is part of RBI's plan to address the tightness in the money market.

The swap entails the central bank purchasing dollars from banks against the rupees they hold while contracting to sell the greenback at a future date. When the central bank buys dollars, it injects an equivalent quantum of rupee liquidity. After the swap's result was announced, the rupee extended losses, with the domestic currency down 0.3 per cent to 87.4900 per dollar.

Also Read: RBI injects $10 billion via currency swap to ease liquidity deficit in financial system: Report

The cash crunch has been caused partly by the central bank’s intervention in the foreign exchange market to shield the rupee from global volatility amid US President Donald Trump’s threat to impose tariff hikes. The shortfall in the market and liquidity crunch hurts an already slowing economy.

Liquidity in the financial system has tightened significantly since late 2024, with the deficit climbing to a 14-year high of ₹3.3 lakh crore in January. RBI has taken several steps to replenish the system with funds, including auction-based open-market bond purchases worth ₹1 trillion and an earlier foreign-exchange swap worth $5 billion.

Also Read: RBI sees tepid demand for VRR auctions as system liquidity crunch eases

Earlier this month, the central bank announced more measures to ease the tight liquidity conditions in the banking system. The measures, which include the purchase of government bonds under open market operations (OMO) and foreign currency swaps, have been taken “on a review of current and evolving liquidity conditions”, the central bank said in a release on March 5.