Archive · 9 Oct 2026
Why India’s Forex Reserves Fell Despite Record FCNR(B) Inflows
India received a large amount of foreign currency through special bank deposits.
Even so, its foreign-exchange reserves fell by more than $50 billion in a month.
The rupee also weakened against the US dollar.
India needs dollars to pay for imports, and higher oil prices increase that need.
Foreign investors have also been selling Indian shares, adding pressure on the rupee.
The central bank can use its reserves to smooth sharp currency movements, but it cannot control oil prices or investor decisions.
RBI Governor Sanjay Malhotra said the rupee’s value may not reflect its underlying fundamentals.
Economists disagree about whether the special currency-support measure was necessary and how much further the rupee may weaken.
India’s foreign-exchange reserves fell by more than $50 billion over a month, despite record FCNR(B) deposit inflows.
Banks raised $132.98 billion through FCNR(B) deposits under a special RBI swap window, which closed a month early.
The rupee weakened from around 95.74 per US dollar when the window was announced in June to 96.84 on October 7.
The article attributes pressure on the rupee to higher oil prices, dollar demand, foreign investor selling and geopolitical uncertainty.
The RBI says it aims to keep the rupee’s movements orderly, while economists differ on the need for intervention and the currency outlook.
- Who
- The Reserve Bank of India, banks raising FCNR(B) deposits, foreign investors, and economists quoted in the article.
- What
- Foreign-exchange reserves fell by more than $50 billion over a month despite record FCNR(B) inflows, while the rupee remained under pressure.
- When
- The article discusses developments through October 7 and the period since the special swap window was announced in early June.
- Where
- India’s foreign-exchange market.
- Why
- Dollar demand linked to oil imports, foreign investor outflows and geopolitical uncertainty has offset the additional foreign-currency liquidity.
RBI intervention and currency outlook
Critics and analyst concerns
Use of the special swap window
RBI intervention and currency outlook
The RBI’s approach is presented as an effort to add foreign-currency liquidity and manage excessive volatility in the rupee.
Critics and analyst concerns
ISB professor Prasanna Tantri questioned the need for the emergency-style swap window, arguing there was no forex crisis when it was opened.
Meaning of the rupee’s weakness
RBI intervention and currency outlook
Governor Sanjay Malhotra said the rupee may not be overvalued and could be undervalued, and that short-term market behaviour can diverge from fundamentals.
Critics and analyst concerns
The article’s quoted economists point to oil prices, foreign investor outflows, global yields and dollar strength as continuing pressures; HDFC Bank economists forecast a 96–98 range for the second half of the financial year.
- Reserve decline
- More than $50 billion over the past month, according to the article.
- FCNR(B) deposits
- Banks raised a record $132.98 billion through FCNR(B) deposits.
- Swap window
- The RBI’s special FCNR(B) swap window closed a month early.
- Rupee on October 7
- It touched 96.84 per US dollar and closed around 96.77.
- FPI equity sales
- Foreign portfolio investors sold Rs 35,861 crore in September and Rs 25,126 crore through October 7, the article reports.
- Economists’ currency range
- HDFC Bank economists expected the rupee to trade in a 96–98 range in the second half of the financial year ending March 2027.
- RBI position
- Governor Sanjay Malhotra said the rupee may be undervalued by some measures and that the RBI would seek orderly movements.