Indian banks have raised approximately $32 billion through various dollar-inflow schemes, as confirmed by Reserve Bank of India (RBI) Governor Sanjay Malhotra in an interview. The majority of these inflows, largely from Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, were designed to bolster India's balance of payments. In addition, about $7 billion has come in as foreign portfolio investments into debt securities following recent tax changes.
Despite these substantial inflows, the rupee's performance has not seen a strong upward trend. While the RBI's measures, including a swap window open until the end of September, aim to stabilize the currency, analysts have noted that the rupee underperformed most Asian currencies recently. Some analysts from Finrex Treasury Advisors, however, attribute earlier rupee strength to the combination of falling crude oil prices, RBI support, and robust foreign currency inflows.
Concerns have been raised regarding the pace of these FCNR(B) inflows, with some, like Barclays, suggesting they are below initial market expectations of $40-$50 billion. A key challenge compared to 2013 is the narrower interest rate differential between Indian FCNR(B) deposit rates and US Treasury bill yields, which has shrunk from 2.9% to 1.4%. Despite this, the RBI dismisses concerns that the inflows are merely rebooking existing deposits and asserts that it has adequate tools to manage liquidity. The RBI intervenes only to curb excessive volatility and does not target a specific exchange rate, noting that the rupee is not overvalued and could even be considered undervalued.
RBI Governor Sanjay Malhotra also reassured markets about the rupee's recent depreciation, attributing it to geopolitical tensions, dollar strength, and broader volatility in emerging markets rather than fundamental economic weakness. He highlighted indicators of external sector strength, including a current account surplus, robust services exports, resilient remittance inflows, rising merchandise exports, and improving foreign direct investment flows.
