India’s foreign exchange reserves have clawed back above the $703 billion mark, adding $2.36 billion in the week ended April 17 after a larger gain the previous week. The turnaround follows a sharp decline from a record $728.5 billion in late February, when the eruption of the Middle East conflict sent crude prices surging and forced the Reserve Bank of India to sell dollars to stem the rupee’s slide. Viewed from Mumbai, the central bank’s intervention appears to have stabilised the overall reserve position for now, but the pressure on the currency has proven more stubborn.

The rupee has fallen almost 5% against the dollar so far this year, touching fresh record lows even as the reserves recover. The damage is broader than the bilateral rate: the RBI’s 40-currency real effective exchange rate has dropped to 92.72, well below its long-term average of 98.25 — its weakest level in more than a decade. Analysts in London note that this metric, which adjusts for cross-country inflation, confirms the rupee is fundamentally undervalued by historical standards, a view shared by India’s chief economic adviser, V. Anantha Nageswaran. He described the currency’s current valuation as an attractive entry point for long-term investors, a characterisation that will be tested as long as Brent crude remains above $100 a barrel.

The twin pressures of elevated oil prices and sustained foreign portfolio investor outflows continue to weigh on the rupee. From Washington, the narrative is one of a broader dollar strength that compounds India’s specific vulnerabilities. The Reserve Bank’s latest data shows foreign currency assets — the largest component of reserves — rose by $1.48 billion to $557.5 billion in the reporting week, but those assets are themselves vulnerable to exchange rate swings and mark-to-market losses. The geopolitical backdrop offers little reassurance: the Middle East conflict shows no signs of easing, keeping energy supply channels tight and risk aversion high.

What matters now is whether the RBI can rebuild its reserve buffer quickly enough to withstand further shocks. The central bank’s willingness to let the rupee adjust rather than exhaust its war chest was evident earlier this year, but the latest reserve uptick suggests a more measured approach. For global investors eyeing India’s long-term story, the chief economic adviser’s confidence in the rupee’s undervaluation may eventually prove prescient, but in the near term the currency faces headwinds that no single metric can dissolve. The coming weeks will reveal whether the reserve recovery is a durable trend or a temporary respite in a longer grind.