$56.8 bn inflows lift rupee just 0.1%, against 8.8% gain in 2013 scheme | Economy & Policy News

Despite $56.8 billion of inflows through the Reserve Bank of India’s (RBI) concessional swap windows, the rupee has appreciated only 0.1 per cent since the scheme was launched, far lower than the 8.8 per cent appreciation seen during the 2013 scheme. Economists said the muted response this time reflects the stronger influence of global factors on the local currency.

 

The rupee moved from 95.71 per dollar on June 8, when the scheme was launched, to 95.60 per dollar on August 17. In comparison, the currency had appreciated 4.9 per cent by end-November 2013 and 8.8 per cent by March 2014 after the previous FCNR(B) scheme was announced.

 
 

“The rupee’s main vulnerabilities this time sit outside India,” an ANZ Bank research report said, citing tight global financial conditions, competition for capital and volatile energy markets. “The limited impact on the INR despite sizeable FCNR inflows underscores this reality,” it said.

 

The RBI on August 14 advanced the closure of the FCNR(B) deposit swap window by a month to August 31 from September 30. As of August 13, FCNR(B) deposits had mobilised $52.3 billion, while offshore foreign currency bonds and external commercial borrowings added $2.8 billion and $1.74 billion, respectively. The ECB and OFCB swap windows will remain open until end-December.

 

An SBI Research report expects another $25-30 billion to flow in through the remainder of August, taking total collections through the special swap windows to around $85 billion. It estimates the balance of payments surplus at around $50 billion, with the current account deficit at 1 per cent of gross domestic product (GDP).

 

SBI Research said the cost of the swap was unlikely to have prompted the RBI to close the FCNR(B) window early. It estimated the five-year cumulative hedging cost at around $10.5 billion, or 15 per cent of the corpus. The cost is equivalent to around 1.45 per cent of India’s roughly $700 billion foreign exchange reserves, it said.

 

The RBI had already recouped $31.2 billion of foreign currency assets, or 55 per cent of the total amount mobilised, as of August 7, SBI said. The central bank could deploy part of these assets towards US securities given higher yields or further diversify reserves through gold purchases, it said.

 

Gold accounted for 16.70 per cent of India’s total foreign exchange reserves in FY26, its highest level, before declining to 15.38 per cent as of August 7, the report added.

 

Radhika Rao, senior economist and executive director at DBS Bank, said the early closure did not necessarily imply a negative outlook for the rupee, given the improvement in the balance of payments and the return of portfolio flows. “We don’t expect the rupee to unilaterally lose ground on an early withdrawal of the deposit scheme,” Rao said. She added that a more interventionist policy response could be warranted if external conditions deteriorate, particularly amid escalating geopolitical tensions or a higher-for-longer US interest rate environment.

 

ANZ Bank expects the rupee to remain broadly stable at 95.5-96 in the near term before gradually depreciating to 97.5 by September 2027.

 

SBI, drawing on the 2013 experience, expects the rupee to appreciate towards 95-95.5 by end-August and thereafter. It said the RBI “should look into activist and surprise intervention strategies” to correct the market’s current depreciation bias.

 

Global factors remain a key risk to the rupee outlook. SBI flagged the 30-year US Treasury yield rising to nearly 5.3 per cent, its highest since 2007, following the July Federal Reserve meeting, amid concerns over the US fiscal outlook and the rising cost of servicing the country’s $36 trillion federal debt. It also pointed to the US Treasury’s move to sell euros and buy yen to support the Japanese currency after it fell to four-decade lows. SBI warned that Brent crude, currently near $88 a barrel, could rise above $100 a barrel if there is a disruption around the Strait of Hormuz.

 

The inflows have nevertheless strengthened India’s external position. YES Bank expects FCNR(B) flows to reach around $65 billion and estimates a capital account surplus of $90.5 billion and a balance of payments surplus of $36.9 billion in FY27, assuming crude oil at $85 a barrel. It expects the RBI to prevent significant depreciation while also capping appreciation around 94.50-95.75.

 

“With the rupee stabilising in the 95 per dollar handle, portfolio flows gradually returning, and the various funding windows likely having raised around $70-75 billion in aggregate, the urgency for policymakers to maintain extraordinary support measures has diminished significantly,” Rao said.

 

India’s underlying balance of payments position has also improved. The current account deficit stood at $3.1 billion in the first quarter of FY27, while the capital account recorded a $5 billion deficit. Portfolio outflows of $9.6 billion were offset by stronger foreign direct investment and banking flows.

 

ANZ Bank said the underlying balance of payments position had improved even without FCNR(B) inflows, with portfolio flows turning positive in July and August. “Overall, aggregate BoP stress in FY27 now looks less acute than previously expected, even before accounting for stronger-than-expected FCNR inflows,” it said.

 

The large inflows have, however, added to domestic liquidity and the RBI’s future foreign exchange liabilities. ANZ estimates onshore banking liquidity has risen to around Rs 3.4 trillion, while the RBI’s net forward book had already exceeded $100 billion before the FCNR(B) scheme was announced.

 

“Ending the window early limits the build-up of rollover risk,” ANZ Bank said.

 

Rao said the RBI’s intervention presence had already been strong this year, with its net forward sales book rising to $106 billion as of May 2026. The scale of inflows received so far was sufficient to strengthen the balance of payments, reducing the need to extend the FCNR(B) deposit window, she said.