RBI Builds Resilient Forex Shield Amid Global Geopolitical Risks
- RBI Diversifies Forex Reserves to guard against geopolitical risks and the weaponisation of reserves'.
- Economic Outlook Strong, with 6.5% GDP growth and 4% inflation projected for FY26.
- IFS Cloud Launch Planned, ensuring secure, domestic storage of financial data by 2025-26.
In a strategic move to shield the Indian economy from geopolitical risks and external shocks, the Reserve Bank of India (RBI) is reinforcing its foreign exchange reserves through enhanced diversification across currencies, asset classes, and jurisdictions. This initiative comes as the central bank’s balance sheet grew by 8.2 per cent, reaching Rs 76 lakh crore in FY25, according to its annual report released on May 29.
The RBI is responding to the growing trend of 'weaponisation of reserves', where countries face restrictions or freezing of foreign-held assets during geopolitical tensions. To counter this, the central bank is building greater 'immunity' into its reserves which account for over 74 per cent of its assets by spreading investments beyond traditional dollar assets and US Treasuries.
“Diversification remains the most critical strategy to ensure safety, liquidity, and return”, the RBI noted. This includes reallocating foreign exchange reserves across multiple jurisdictions and financial instruments to minimize exposure to sanctions and market volatility.
India’s forex reserves rose by 3.4 percent in the past year to $668 billion, following an 11.7 per cent increase the previous year, reflecting cautious yet steady accumulation despite a volatile global environment.
In its economic outlook, the RBI projects India’s GDP to grow at 6.5 percent in 2025-26, maintaining its status as the world’s fastest-growing major economy. Inflation is expected to be contained at 4 per cent, aligning with the central bank’s target range. While global uncertainties in trade and tariffs pose challenges, the RBI noted that India’s trade deficit remains within manageable levels.
Additionally, the central bank is prioritising the security of domestic financial data amid rising cyber threats. As part of this effort, the RBI plans to launch its own cloud infrastructure under the Indian Financial Services (IFS) Cloud project in 2025-26. Phase I of this initiative aims to provide secure and indigenous data storage solutions for financial institutions.
The RBI is also encouraging the broader internationalisation of the Indian rupee, reinforcing India’s resilience in the global financial system. With a focus on long-term stability, the central bank’s policies reflect a broader shift towards safeguarding economic sovereignty in an increasingly uncertain global landscape.
