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The Reserve Bank of India (RBI) has mobilised USD 20.72 billion under its foreign currency mobilisation measures introduced in early June, providing a strong boost to India's balance of payments. Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits contributed the majority of the inflows, easing concerns over weak participation. Economists believe the strong response could help maintain a balance of payments surplus despite higher crude oil prices, while also supporting the rupee and strengthening the RBI's ability to manage currency market volatility.
The Reserve Bank of India's (RBI) foreign currency mobilisation measures introduced in early June have attracted USD 20.72 billion in inflows until the past week, reinforcing confidence in India's external sector at a time when global crude oil prices remain volatile.
According to the RBI's first update since the scheme was launched, around USD 17.5 billion of the total inflows came through Foreign Currency Non-Resident (Bank) or FCNR(B) deposits. The remaining amount was mobilised through other eligible foreign currency instruments introduced as part of the central bank's measures.
The latest figures have eased concerns that the scheme was witnessing a slow response and might fall short of expectations. Market participants had earlier expressed caution over the pace of deposits due to elevated US interest rates and global financial conditions.
Analysts at Nomura said the amount raised under the FCNR(B) deposit scheme was significantly higher than market expectations and contradicted earlier reports suggesting that banks were facing difficulties in attracting deposits because of higher US interest rates and other operational challenges.
The current mobilisation has also outpaced a similar RBI initiative launched in 2013. According to Bank of America (BofA), nearly USD 10 billion was mobilised during the first seven weeks of the 2013 programme, whereas the current scheme has already attracted more than double that amount over a comparable period.
Economists noted that such schemes generally witness stronger inflows during the later stages of the subscription window. Based on the mobilisation trend seen in 2013, BofA estimated that total inflows under the current programme could eventually reach nearly USD 80 billion if the present pace continues.
The healthy inflows are expected to strengthen India's balance of payments (BoP), which records the country's transactions with the rest of the world. A stronger BoP position is considered important for maintaining macroeconomic stability, especially during periods of rising import costs caused by higher crude oil prices.
Gaura Sen Gupta, Chief Economist at IDFC First Bank, said the bank's balance of payments estimate was currently tracking a surplus of around USD 25 billion, with upside potential if FCNR inflows continue to strengthen. She added that the forecast was based on Brent crude prices averaging between USD 75 and USD 80 per barrel, while oil prices have recently moved closer to USD 90 per barrel.
She further stated that the additional foreign currency inflows would provide the RBI with greater flexibility to contain depreciation pressure on the Indian rupee.
The stronger external position could also influence the RBI's foreign exchange intervention strategy as the rupee continues to trade close to its record low against the US dollar. With higher foreign currency inflows, the central bank would have greater room to manage excessive volatility in the currency market while preserving its foreign exchange reserves.
The RBI had introduced these measures in early June to encourage foreign currency inflows amid global uncertainties and rising geopolitical risks that had increased pressure on emerging market currencies. The package included relaxations for FCNR(B) deposits and other foreign currency borrowing avenues aimed at strengthening India's external financing position and ensuring adequate foreign exchange liquidity.
Source Reuters
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