2 weeks ago
RBI's Early FCNR(B) Swap Window Closure Raises Rupee Risks
The Reserve Bank of India is like the country's money manager, and it watches over the Indian rupee.
It opened a special program called the FCNR(B) swap window to encourage banks to bring in foreign money.
The RBI decided to close this program earlier than planned.
A research group called SBI Research studied what this means.
It thinks banks could bring in about 70 billion dollars through these deposits.
Protecting that money from exchange-rate changes could cost about 10 and a half billion dollars over five years.
That sounds like a lot, but it is only a small part of India's big savings account, which holds nearly 700 billion dollars.
The rupee has barely moved, going up only 0.1%, since the program started in June.
SBI Research expects the rupee to get a bit stronger, reaching about 95 per dollar by the end of August.
There are also worries from far away, like high US bond yields and possible actions by Japan, that could put pressure on the rupee.
The Reserve Bank of India closed its special FCNR(B) swap window ahead of schedule, according to SBI Research's Ecowrap report.
SBI Research estimates banks could mobilise around $65-70 billion through FCNR(B) deposits, potentially rising to $80-85 billion including overseas bonds and ECBs.
The estimated five-year hedging cost on a $70 billion deposit base is about $10.5 billion, equal to roughly 1.45% of India's forex reserves.
The rupee appreciated only 0.1% between June 8 and August 17, with SBI Research expecting it to strengthen to 95-95.5 per US dollar by August 31.
Global risks include the 30-year US Treasury yield near 5.3% and possible Japanese intervention that could pressure emerging-market currencies, including the rupee.
- Who
- The Reserve Bank of India (RBI), with analysis from SBI Research.
- What
- The RBI closed its special FCNR(B) swap window ahead of schedule, prompting SBI Research to examine rupee risks and recommend more active central bank intervention.
- Where
- India
- When
- The swap programme began June 8 and was closed before schedule; the Ecowrap report was released around August 17.
- Why
- To manage exchange-rate risks and address pressure on the rupee amid global market developments such as rising US Treasury yields.
Key facts
- FCNR(B) mobilisation estimate
- $65-70 billion
- Total mobilisation incl. bonds and ECBs
- $80-85 billion
- Estimated five-year hedging cost
- ~$10.5 billion
- Hedging cost as share of forex reserves
- ~1.45%
- India's forex reserves
- Nearly $700 billion
- Rupee appreciation (June 8 - Aug 17)
- 0.1%
- Expected USD/INR by Aug 31
- 95-95.5
- 30-year US Treasury yield
- Close to 5.3%, highest since 2007











