$32 Billion Inflows Hit Markets as RBI Measures Drive FCNR(B) Deposits Amid Global Volatility
The Reserve Bank of India (RBI) has successfully mobilized substantial foreign capital, drawing nearly $32 billion through its targeted measures, according to Governor Sanjay Malhotra. A significant portion of these inflows were achieved via Foreign Currency Non-Resident Bank (FCNR(B)) deposits, bolstering the stability of the country’s balance of payments.Malhotra confirmed that, apart from these deposit movements, foreign investors have committed over $7 billion into government securities since the incentive measures were announced in June. This robust response signals strong confidence in India's economic resilience despite challenging conditions prevailing across emerging markets globally.
Assessment of Rupee Stability and Exchange Rate Pressure
The Governor maintained that the rupee has become undervalued after its recent depreciation, both when assessed nominally and through the real effective exchange rate metrics. He firmly stated that this currency decline does not reflect any weakness in India's underlying economic fundamentals.Instead, Malhotra attributes the pressure on the domestic currency primarily to geopolitical tensions, the strength of the dollar, and broader volatility witnessed across other emerging markets. The RBI reiterated its operational stance, clarifying that it does not target a specific exchange rate or trading band; its interventions are solely aimed at curbing excessive market fluctuations.
India's External Sector Strength and Economic Fundamentals
The economic outlook remains solid, pointing to significant external sector strength in India. Malhotra cited the current-account surplus recorded during April and May as evidence of this resilience.Further indicators of a stable economy include strong services exports, consistent remittances flows, rising merchandise exports, and improving foreign direct investment (FDI) inflows. In response to concerns regarding the central bank bearing hedging costs for FCNR(B) deposits and concessional swaps offered for external commercial borrowings by public-sector entities, Malhotra assured that the arrangement does not pose undue risk.
RBI's Monetary Policy Stance and Inflation Priority
Addressing queries concerning the inherent risks of the current operations, Malhotra assured investors that the central bank employs a foolproof system to manage these exposures. He explained that the foreign currency mobilized through these measures is strategically invested in overseas assets.Crucially, while focusing on capital flows, the RBI’s foremost priority remains price stability and inflation control. The Monetary Policy Committee (MPC) will continue to adhere to a data-dependent approach moving forward, as confirmed by Governor Malhotra. Although inflation has moved above the 4 per cent target, policymakers have not yet detected any signs of broad-based price pressures becoming entrenched within the economy.
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