RBI Supplement: Forex Reserves Drop to $671.6 Billion Amid Gold Valuation Shift

Valuation Losses Driven by Gold Price Fluctuations

India's foreign exchange reserves witnessed a substantial contraction, declining by $9.98 billion to stand at $671.62 billion for the week ending June 12, 2026. Data released in the Reserve Bank of India’s weekly statistical supplement indicates that the drop was primarily driven by a significant valuation shift in gold reserves, which fell by $10.75 billion to a total of $103.82 billion. This adjustment reflects global gold market volatility, as central bank interventions and shifts in U.S. treasury yields led to a sharp correction in bullion prices. The foreign currency assets (FCA) component, however, provided a partial buffer, expanding by $790 million to reach $544.22 billion, highlighting the RBI's active portfolio management and foreign exchange interventions to stabilize the rupee.

Systemic Liquidity Management and Money Supply

The RBI's supplement also details active monetary policy operations. Systemic liquidity remained in a surplus phase during the week, prompting the central bank to absorb excess funds from the banking system. The RBI absorbed over ₹1.6 lakh crore daily on average through the Standing Deposit Facility (SDF) to maintain the call money rate near the policy repo rate. Concurrently, domestic money stock (M3) continued its steady expansion, reaching ₹313.6 lakh crore as of the end of the reporting period. This represents a 12% year-on-year growth rate, reflecting robust money creation through bank credit expansion, which supports ongoing industrial and consumer activities across the country.

The Credit-Deposit Growth Divergence

A notable structural highlight in the banking sector data is the persistent divergence between credit expansion and aggregate deposit growth. As of May 31, 2026, bank credit grew by 17.7% year-on-year to reach ₹213.7 lakh crore, driven by strong demand for retail loans, agricultural credit, and services sector advances. In contrast, aggregate bank deposits grew by 12.2% annually, totaling ₹313.28 lakh crore. Governor Sanjay Malhotra has previously cautioned banks regarding this gap, advising institutions to focus on mobilizing stable retail deposits to avoid reliance on short-term wholesale funding, which increases liquidity risk and funding costs in a high-interest-rate environment.