Addressing concerns over the future of the special window, Malhotra said the central bank remains satisfied with the inflows and expects more funds to come in over the coming weeks.
“We have got robust flows as mentioned, and we do hope to get good healthy close going forward. As of now, there is no proposal under consideration to close the scheme prematurely,” Malhotra said at the post-policy press conference.
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The clarification comes amid strong participation by non-resident Indians (NRIs) in the RBI’s special FCNR(B) mobilisation scheme, which was unveiled in June to boost foreign exchange inflows, strengthen the balance of payments and support the rupee.
The central bank had announced a special dollar-rupee swap facility for banks on fresh FCNR(B) deposits with maturities of three to five years. Under the scheme, the RBI bears the hedging cost, enabling banks to offer more attractive returns to NRI depositors while raising overseas funds at a lower cost. The mobilisation window for fresh FCNR(B) deposits remains open until September 30, while the swap facility for banks is available until October 16.
The scheme has already exceeded early expectations. RBI data showed that special measures to attract foreign exchange had brought in $40.81 billion by July 31, with FCNR(B) deposits accounting for the bulk of the inflows.
The surge in deposits has also eased funding pressures for banks by providing a stable source of longer-tenure foreign currency liabilities without significantly affecting short-term liquidity requirements.
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The RBI introduced the special window after pressure on the rupee from global uncertainty and capital outflows. Besides the swap facility, it relaxed pricing norms, allowing banks to offer higher interest rates on eligible FCNR(B) deposits. Several lenders, including HDFC Bank and ICICI Bank, have since raised FCNR(B) deposit rates to attract more NRI money.
The RBI has previously said the measures are aimed at encouraging durable foreign currency inflows rather than short-term capital, with the FCNR(B) deposits carrying a mandatory one-year lock-in under the special facility.
On the rupee, Malhotra reiterated that the RBI does not target any specific exchange rate level and will continue to allow market forces to determine the currency’s value while stepping in only to prevent excessive volatility.
“There can be an argument, as some people have made, that perhaps nominal effective exchange rate terms may be undervalued. There is a lot of uncertainty. It is quite possible going forward as we as the tensions and the conflict deescalates. It is quite possible that further strengthened.” he said, noting that the rupee’s nominal effective exchange rate (NEER) has already strengthened from around 97 to 95 over the past month.
Malhotra stressed that the RBI’s exchange rate policy remains unchanged.
“our policy has always been that the markets that prices level and demand we don’t pursue. We only intervene in case there is an excessive volatility. There are speculative pressures that are getting built in…” he said.
The Governor added that the RBI’s objective is to ensure that the rupee moves in an orderly manner without triggering disruptive market behaviour.
“It will be our endeavor that the trajectory for rupee remains orderly and there is no disruptive moment of there is no expectation of self fulfilling expectations of getting built in actually,” he said.
Forex reserves remain comfortable
Malhotra also underlined India’s strong external position, saying the country has ample foreign exchange reserves despite global uncertainties.
According to the Governor’s monetary policy statement, India’s foreign exchange reserves remain adequate across standard reserve adequacy metrics, providing an import cover of more than 10 months while covering 90.8% of the country’s external debt.
“India’s foreign exchange reserves continue to be adequate in terms of the standard metrics of reserve adequacy with import cover of over 10 months and external debt cover of 90.8 per cent,” the Governor said.
Reiterating the RBI’s exchange rate policy, Malhotra said the central bank would continue to allow the rupee to be market-determined while intervening only to curb excessive volatility.
“As for the exchange rate, we will continue with our policy of it being determined by market forces, while curbing excessive volatility, checking speculative behaviour and preventing disorderly movements to ensure that it is not out of sync with fundamentals or disruptive of economic activity. For this purpose, we have a broad range of effective regulatory and market-based instruments,” he said.