RBI closes FCNR(B) swap window early as inflows hit $56.8 bn

The Reserve Bank of India closed its FCNR(B) swap facility a month early on August 31, surprising markets. SBI Research said the cost of hedging, estimated at USD 10.5 billion over five years, was unlikely to have driven the decision, as it equals only 1.45 per cent of India's USD 700 billion forex reserves. Instead, the research house believes mobilisation targets may already have been met, with FCNR(B) deposits at USD 52.3 billion and total inflows including ECBs at USD 56.8 billion as of August 13.

Business Today reports that the RBI governor had said on August 5 there was no plan to close the scheme early. Rajani Sinha of CARE Edge Ratings said strong inflows may have created excess liquidity, prompting the closure. The rupee, which hit a lifetime low of 96.96 in May, touched 95.60 after the announcement. Sakshi Gupta of HDFC Bank said the premature end limits any further rupee upside. SBI Research expects FCNR(B) mobilisation to reach USD 60-65 billion, while total inflows could hit USD 80-85 billion.