The Indian rupee surged to a more than two-month high on Thursday, significantly bolstered by a massive influx of foreign exchange. The Reserve Bank of India (RBI) played a crucial role, not only selling dollars but also benefiting from substantial inflows that augmented its capacity to support the domestic currency.
RBI Mobilizes Over $136 Billion Through Special Scheme
The rupee's strength follows the RBI's successful mobilization of approximately $127 billion through a special program designed for the Indian diaspora. This initiative, combined with an additional $9.15 billion from overseas foreign-currency borrowings (OFCB) and external commercial borrowings (ECB), pushed total inflows to an impressive $136.37 billion. This figure far exceeds the RBI Governor Sanjay Malhotra's initial estimate of $80 billion for the scheme.
The special USD-INR forex swap facility was launched on June 8 to counter pressure on the rupee, which had been affected by the West Asia conflict, rising oil and energy prices, and a decline in foreign-exchange reserves. Provisional RBI data indicates that by August 31, FCNR(B) deposits alone contributed $127.2 billion, with OFCBs adding $5.26 billion and ECBs $3.89 billion. The initial expectation for the scheme was $50 billion-$60 billion, later revised to $80 billion.
Analyst Insights and Market Outlook
Anindya Banerjee, an FX analyst at Kotak Securities, noted that the total flow under the RBI's plan is expected to comfortably reach about $145 billion, as certain facilities beyond the FX deposits window remain open. Banerjee attributes the improved sentiment around the rupee to three key factors: the RBI's enhanced firepower from the fresh inflows, strong GDP growth numbers reported last week, and a substantial liquidity surplus supporting growth.
For the USD/INR pair, the 94 level is now identified as a critical technical support. Banerjee suggests that a fall below 94 could trigger hedging by exporters, potentially leading to a rally for the Indian Rupee towards 92.50.
The FCNR(B) deposit window closed for fresh deposits on August 31, a month ahead of schedule, indicating the stronger-than-expected response. Swaps under this facility can be availed with the RBI until September 11, while the ECB and OFCB windows are set to remain open until December 31. CareEdge Ratings observed that this strong mobilization has significantly "augmented banking system liquidity and provided banks with greater near-term funding flexibility."