RBI sees rupee as undervalued; inflows largely through FCNR (B) touch $32 billion
RBI Governor Sanjay Malhotra has said the central bank's June measures to attract foreign capital have drawn nearly $32 billion, largely through Foreign Currency Non-Resident (Bank) deposits, alongside more than $7 billion of foreign inflows into government securities. He also argued that the rupee's recent depreciation reflects geopolitics and dollar strength rather than weak fundamentals, and that inflation control remains the RBI's foremost priority. The interview brings together the external account, exchange-rate management and the monetary policy framework in one place.
What happened
In an interview with The Hindu BusinessLine, Mr. Malhotra said banks had mobilised close to $32 billion since the June policy measures, mostly through FCNR(B) deposits, while government securities attracted over $7 billion in foreign inflows. He dismissed the suggestion that these inflows were merely a recycling of existing deposits, and said the RBI had adequate tools to manage the resulting liquidity. On the concern that the RBI is bearing the hedging cost of fresh FCNR(B) deposits and offering concessional forex swaps for external commercial borrowings by public sector entities, he said excess foreign currency received is invested in foreign assets, so "the risk, therefore, is not there". On monetary policy, he said inflation and price stability remain the primary mandate, with growth supported to the extent possible.
Why it matters
The Governor is defending two positions simultaneously: that the rupee's slide is not a fundamentals problem, and that the cost of subsidising foreign-currency inflows is covered. Critics cited in the interview have raised precisely those two doubts — that the FCNR(B) numbers may be recycled deposits rather than new money, and that the RBI is absorbing hedging and swap costs. Mr. Malhotra reiterated that the RBI targets neither a specific exchange rate nor a band, intervening only to curb excessive volatility, and said the currency is "not overvalued" and may be undervalued on both nominal and real effective exchange rate measures. He also said MPC decisions would be guided by domestic conditions rather than the actions of global central banks, which matters for how the rate path is read against external cues.
Prelims: FCNR(B) deposits as a source of foreign currency inflows · Distinction between nominal and real effective exchange rate · RBI intervention to curb volatility versus targeting a rate or band · MPC's 4% inflation midpoint and a neutral policy stance · Forex reserve management principles: safety, liquidity and returns · Capital adequacy, liquidity coverage and stable funding ratios as lending constraints.
Mains (GS-III): Examine the argument that measures such as concessional forex swaps and support for FCNR(B) inflows strengthen India's balance of payments without transferring risk to the central bank.</<<<}<|channel|>Wait, I made JSON errors. Let me re-emit cleanly.<|start|>assistant{
Background
The measures under discussion date to the RBI's June policy actions aimed at attracting foreign capital, which included concessional forex swaps for external commercial borrowings by public sector entities. Mr. Malhotra placed them in the context of heightened geopolitical uncertainty and volatile capital flows facing emerging markets, and cited an April-May current account surplus, strong services exports, resilient remittances, rising merchandise exports and improving FDI as signs of external strength. Inflation has moved above the 4% midpoint of the MPC's target band, though he said policymakers do not yet see broad-based price pressures becoming entrenched, and the MPC's stance remains neutral.