7 hrs ago

FCNR Inflows Drive Lower Short-Term Borrowing Costs Amid Liquidity

Banks have received a large amount of foreign-currency deposits through the FCNR (B) scheme.

This has left the banking system with more money available to lend.

As a result, the cost of borrowing for short periods has fallen.

Three-month certificate of deposit rates dropped by more than 100 basis points from their peak.

ICICI Bank expects liquidity to stay high in the coming months.

The bank warned that extra money in the system can eventually push inflation higher.

It said the central bank may need to temporarily or permanently remove some of the extra liquidity.

ICICI Bank expects interest rates to rise gradually if needed.

Key facts

Three-month CD rates: Down more than 100 basis points from their peak this year.
Six-month CD rates: Down around 100 basis points from their earlier peak.
One-year CD rates: Down around 90 basis points from their earlier peak.
Gross FCNR (B) inflows: Approximately $127 billion.
Current system liquidity: Around ₹10.5 lakh crore, or 3.9% of net demand and time liabilities.
Expected March surplus: Around 2.5% of net demand and time liabilities, according to ICICI Bank.
Inflation forecast: Headline inflation at 4.5% in FY28 and core inflation excluding precious metals at around 4%.

thehindubusinessline.com · 7 hrs ago