India's special foreign currency mobilisation measures have attracted over $40 billion, with FCNR(B) deposits accounting for the bulk of the inflows.
The RBI's special swap facilities are helping build additional foreign currency resources, reducing reliance on existing forex reserves during periods of market volatility.
Despite robust inflows, the rupee has seen limited appreciation as much of the foreign currency is being absorbed into the RBI's balance sheet rather than flowing directly into the spot market.
RBI's Forex Push Brings in Over $40 Billion, FCNR(B) Deposits Lead the Way
Fresh foreign currency inflows under the RBI's special measures have crossed $40 billion, strengthening India's external buffers even as the rupee remains under pressure
India's FCNR(B) Deposit Rush Gathers Pace; SBI Sees Up To $70 Billion By Scheme Close
Summary
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Nearly two months after the Reserve Bank of India (RBI) rolled out measures to attract foreign currency, the response has exceeded expectations.
Banks have mobilised more than $36 billion through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, while other special borrowing windows have taken the total inflows to nearly $41 billion. Some economists believe the figure could eventually approach $100 billion.
Yet, despite these inflows, the rupee has remained largely unchanged at around 95.31 per US dollar, raising an obvious question: why isn't the currency strengthening?
RBI's Goal Is Stability, Not Appreciation
The RBI's latest measures are designed to strengthen India's external buffers rather than engineer a stronger rupee. Traditionally, the central bank supports the currency by selling dollars from its foreign exchange reserves. While effective, repeated intervention depletes reserves.
Instead, the RBI is encouraging fresh dollar inflows before market stress intensifies, creating an additional cushion to deal with future volatility.
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Why FCNR(B) Deposits Matter
The largest share of inflows has come through FCNR(B) deposits, where non-resident Indians deposit foreign currency with Indian banks. Under the RBI's special swap facility, banks can exchange these dollars with the central bank for rupees and reverse the transaction when the deposits mature.
The arrangement benefits all parties. Depositors avoid exchange-rate risk, banks receive protection against currency fluctuations, and the RBI gains access to additional foreign currency without immediately drawing down its reserves.
Why the Rupee Hasn't Appreciated
Although billions of dollars have entered India, most of the money is parked on the RBI's balance sheet rather than entering the spot foreign exchange market.
Consequently, the inflows do not create a large immediate increase in dollar supply that would normally push the rupee higher.
The central bank also appears comfortable with gradual currency depreciation if global conditions warrant it. Its priority is preventing disorderly market movements triggered by panic, speculative attacks or a shortage of dollars.
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Strengthening India's External Defences
The broader significance of the programme lies in improving confidence. A larger pool of foreign currency gives the RBI greater flexibility to manage volatility at a time of elevated crude oil prices, geopolitical uncertainty and a strong US dollar.
While FCNR(B) deposits, overseas borrowings and portfolio inflows are temporary and will eventually mature or be repaid, they significantly strengthen India's near-term external position.
Rather than targeting a stronger rupee, the RBI is building a deeper financial buffer to ensure India can navigate global shocks without facing a disruptive foreign currency crunch.