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RBI to End Forex Swap Facility Early After Strong Inflows Exceed $50 Billion
The Reserve Bank of India (RBI) announced on Friday it will close a discounted foreign exchange swap facility for banks one month ahead of schedule, citing a successful influx of more than $50 billion. The central bank moved the deadline for the zero-cost hedging facility for overseas foreign exchange deposits to August 31 from the original date of September 30.
Strong Inflow Details
The decision was prompted by an "encouraging response to the swap facility for FCNR(B) deposits and the resultant forex inflows," according to a statement from the central bank. The measures, introduced in June, were highly effective at attracting foreign capital.
Between June 8 and August 13, the various facilities attracted a total of $56.8 billion in foreign currency. The breakdown includes:
- $52.3 billion through Foreign Currency Non-Resident (FCNR) deposits raised by banks.
- $2.8 billion from overseas foreign currency borrowings by authorized lenders.
- $1.7 billion through swap facilities for external commercial borrowings (ECBs).
AdPolicy Context and Market Implications
The swap facility was part of a broader package of measures designed to strengthen India’s balance of payments position and bolster its foreign exchange reserves. The early termination of the program signals that the RBI's objectives have been met ahead of schedule, reflecting a strengthened forex position.
For investors and markets, the move can be viewed as a sign of confidence from the central bank in the stability of the Indian Rupee and the broader economy. The RBI confirmed that related windows for external commercial borrowings and overseas foreign currency borrowings will remain open until the end of the year as originally planned.
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