Valuation Surge Drives Reserves Accretion as BoP Deficit Widens Amid Global Shifts
The Reserve Bank of India (RBI) has released detailed data on the sources of variation in India's Foreign Exchange Reserves for 2025-26, offering a nuanced view of reserve changes. While nominal reserves saw an increase driven heavily by valuation effects, underlying Balance of Payments (BoP) dynamics showed a widening deficit when valuations are excluded.The RBI report indicates that foreign exchange reserves in nominal terms increased by US$ 22.8 billion during 2025-26. This contrasts with the BoP calculation, which shows a reduction of US$ 23.6 billion on a BoP basis (excluding valuation effects).
Valuation Gains Dominate Reserve Accretion
The primary driver behind the nominal increase in reserves is the significant gain reported under Valuation Effects. During 2025-26, this gain stood at US$ 46.4 billion. This figure marks a notable rise from US$ 26.9 billion recorded during the preceding fiscal year, 2024-25.The valuation increase is attributed to external market factors, primarily reflecting the higher price of gold and the depreciation of the US dollar against major currencies. These global financial movements significantly influenced the reported reserve performance in nominal terms.
Decelerating Capital Flows and Current Account Strain
A deeper look at the BoP data reveals pressures across both the current and capital account segments. The Current Account Balance registered a deficit of US$ 25.4 billion for 2025-26, representing an increase in deficit compared to the US$ 23.1 billion recorded in 2024-25.The Capital Account (net) showed a sharp downturn. For 2025-26, the net capital account balance was US$ 1.8 billion, which is a stark decline from the net inflow of US$ 18.0 billion reported during 2024-25.
Breakdown of Capital Account Movements
The reduction in net capital inflows can be traced through various components. While Foreign Direct Investment (FDI) saw positive growth at US$ 6.9 billion, Portfolio Investment recorded a significant outflow amounting to -US$ 16.4 billion during the year.Other elements contributed to the mixed picture. Banking Capital saw a rise of US$ 6.4 billion, while Short-term Credit improved by US$ 13.7 billion compared to previous periods. However, Other Items in the Capital Account recorded a substantial deficit of -US$ 22.7 billion for 2025-26.
Key Figures from Foreign Exchange Reserves Variation (2025-26)
The data highlights several critical figures that determine the overall variation in reserves. The total increase in reserves on a nominal basis stands at US$ 22.8 billion. Conversely, the change in foreign exchange reserves calculated on the BoP basis is a decrease of US$ 23.6 billion. This underscores how external valuation effects influence the reported accretion despite fundamental economic pressures.Disclaimer: Due care and diligence have been taken in compiling and presenting news and market-related content. However, errors or omissions may arise despite such efforts.
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