RBI Deploys FCNR-B and PSU Swaps to Support Rupee and Attract Investments
Reserve Bank of India Announces Measures to Support Depreciating Rupee
The Reserve Bank of India (RBI) introduced a series of measures on June 5 to stabilize the depreciating rupee. The central bank will provide full support for bearing hedging costs for banks raising three to five-year foreign currency non-resident bank (FCNR-B) deposits until September 30. This move is expected to make it easier for banks to mobilize more overseas deposits, which could lead to increased inflows in the country.
One of the key measures announced is a concessional forex swap facility for external commercial borrowings (ECBs) by central public sector enterprises (CPSEs). This facility will be available until September 30. Additionally, the RBI has restored the time limit for realizing export proceeds to nine months from 15 months. These measures are expected to bring in multi-billion-dollar inflows, according to economists.
The RBI's move comes in response to the weakening rupee, which has been falling to record lows against the dollar. The rupee is down more than 5 percent since the start of the year and 2.5 percent since the April MPC. It is also one of the worst-performing emerging Asian currencies this year, with the decline attributed to high crude prices and FPI outflows.
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As of 2:10 pm, the rupee was trading at 95.06 against the dollar, up 60 paise from 95.71 at the open. The RBI's measures are aimed at addressing the paucity of foreign flows into the Indian economy and resolving external sector problems.
The RBI retained its "neutral" stance in the June policy, keeping the central held repo rate steady at 5.25 percent. According to Indranil Pan, Chief Economist at Yes Bank, the measures introduced by the RBI could lead to inflows of $35 billion-$45 billion, which could close the gap for the anticipated BoP for FY27.
| Year | Rupee Depreciation against Dollar |
|---|---|
| From start of year | 5% |
| Since April MPC | 2.5% |
Note: The table above provides a comparison of the rupee's depreciation against the dollar.
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Investor Takeaway
The RBI's measures may attract investments and boost the sovereign debt market.
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