India Attracts $17.4 Billion in Forex Inflows Under RBI Support Program

A series of measures by the Reserve Bank of India (RBI) designed to attract foreign capital have drawn in $17.4 billion as of last Friday, the central bank announced in a statement. The initiative is a key part of policymakers' efforts to bolster foreign exchange reserves and support the Indian rupee, which has been trading near record lows.

Breakdown of Inflows

The bulk of the capital was attracted through a program allowing lenders to offer more attractive rates on foreign currency deposits to non-resident Indians. The RBI, which based its report on data from authorized dealer banks, noted that the program is receiving "strong interest" and attracting "steady inflows."

Beyond the deposit scheme, the central bank detailed other significant sources of capital:

• Companies raised $1.34 billion through external commercial borrowings (ECBs).
• Overseas foreign currency borrowings accounted for another $1.97 billion.

Policy Aims to Stabilize Rupee

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These policy actions are part of a broader strategy to stabilize the rupee amid significant external pressures. The currency has been weakened by a widening current account deficit, exacerbated by high global oil prices that negatively impact India's balance of payments.

By increasing the domestic supply of U.S. dollars and other foreign currencies, the RBI aims to alleviate depreciation pressure on the rupee. The success of these measures is being closely watched by investors as an indicator of the central bank's ability to manage currency volatility.

Program Mechanics and Timeline

A key feature of the initiative is a special swap window where the RBI is subsidizing hedging costs for eligible banks and borrowers. By covering these costs, the central bank makes it significantly cheaper and more attractive for entities to raise funds overseas and bring them into India.

The RBI has set specific deadlines for these facilities. The window for new foreign currency non-resident (FCNR) deposits will remain open until September 30, while the facilities for ECBs and other overseas borrowings will be available until December 31.