RBI covers FCNR(B) hedging costs to attract US dollar inflows
The RBI has announced support for hedging costs on fresh FCNR-B deposits, aiming to attract more US dollars into Indian banks.
This time, RBI is covering all hedging costs for new three- and five-year deposits until September 2026, making it easier and more appealing for non-resident depositors and banks to raise such deposits in India.
It's basically a refreshed version of the 2013 plan that helped stabilize the rupee during tough times.
Market participants expect $40-$50bn inflows
With banks now able to offer around 6% interest on these US dollar deposits, and RBI picking up the hedging tab, the deal looks pretty solid compared to other options.
Market participants think this could bring in $40 to $50 billion, helping offset recent foreign outflows amid global tensions and high oil prices.
The move is expected to make India's financial system steadier by encouraging sustainable capital inflows.