RBI's forex measures attract $32B in foreign inflows
What's the story
The RBI Governor Sanjay Malhotra has revealed that banks have successfully mobilized nearly $32 billion through Foreign Currency Non-Resident Bank (FCNR(B)) deposits. This was achieved by the bank's recent efforts to attract foreign capital. In an interview with The Hindu BusinessLine, Malhotra also said that foreign investors have invested over $7 billion in government securities since June.
Investor response
Inflows to bolster India's balance of payments, currency stability
Malhotra emphasized that the strong investor response came despite challenging conditions for emerging markets.
He said these inflows would strengthen India's balance of payments and currency stability.
The RBI chief dismissed fears that these inflows could be a recycling of existing deposits, assuring that the central bank has enough tools to manage any resulting liquidity.
Risk management
Hedging costs and forex swaps not a risk: Malhotra
Responding to concerns about the RBI bearing the hedging cost of new FCNR(B) deposits and providing concessional forex swaps for public sector external commercial borrowings (ECBs), Malhotra said these measures don't pose any undue risk to the central bank.
He explained that excess foreign currency received through these measures is invested in foreign assets, thus eliminating any potential risk.
Currency outlook
Rupee's recent depreciation doesn't reflect economic weakness
Malhotra clarified that the recent depreciation of the rupee doesn't indicate weakness in India's economic fundamentals.
He said pressure on the currency has mainly come from geopolitical tensions, dollar strength, and broader volatility across emerging markets.
The RBI does not target any specific exchange rate or band for the rupee but intervenes when necessary to curb excessive volatility.
Economic indicators
RBI's inflation control remains top priority
The RBI chief cited the current account surplus recorded during April-May, robust services exports, resilient remittances inflows, rising merchandise exports, and improving foreign direct investment flows as signs of India's external-sector strength.
He reiterated that inflation control remains the RBI's top priority while being mindful of growth risks.
The Monetary Policy Committee (MPC) will continue to adopt a data-dependent approach amid evolving growth-inflation trade-offs.