RBI: No Premature End to Concessional Forex Swap Scheme

Mumbai, Aug 5 (PTI) The Reserve Bank of India (RBI) Governor Sanjay Malhotra on Wednesday said the central bank has no proposal at present to close its concessional foreign exchange swap facility prematurely, expressing confidence that the scheme will continue to attract healthy foreign currency inflows.

"We have got robust flows, and we do expect healthy flows in the future. There is no proposal for now to close the scheme prematurely," Malhotra said during the post-policy press conference here.

The RBI had announced the concessional forex swaps in early June as part of coordinated measures with the government to attract foreign flow amid weakness in the Indian rupee, which was hitting lifetime lows versus the US dollar. So far, nearly USD 41 billion has been mobilised through the schemes, which include USD 36.725 billion under FCNR(B) deposits from the diaspora, USD 2.5 billion in overseas foreign currency borrowings and USD 1.5 billion of external commercial borrowings.

The FCNR(B) scheme is ending in September, while the other two will be on till December. The RBI is also bearing the cost of currency hedging under the scheme.

When asked about the lack of sufficient appreciation in the rupee because of the schemes, Malhotra countered, saying that the Indian currency has strengthened over the last one month or so from 97 to 95 levels.

Fundamentals of the Indian economy remain strong, and the inflows mobilised under the scheme have further strengthened the country's external position.


"The underlying fundamentals of the Indian economy are very strong. Even before these measures, we had comfortable and strong external positions, and it further fortifies our external positions," he said.

The governor also referred to the continuing geopolitical pressures at the moment, which is creating a lot of uncertainities.

"Going forward, as the tensions and the conflict de-escalates, it is quite possible that the rupee may further strengthen," he said.

The RBI intervenes only when there is excessive volatility, and it will be the central bank's endeavour that the trajectory for the rupee remains orderly, he said.

Malhotra, however, said that the RBI has not computed data from a geographical perspective, but the experience till now has "ticked all the boxes" on the intents of the scheme, including BoP (balance of payment) management, liquidity and forex, from an RBI standpoint.

To a question on the impact of the FCNR(B) flows on the RBI balance sheet, Malhotra said, "We keep doing normal swaps. We do buy and sell foreign currency. The liquidity that it will generate is for a short while. The balance sheet is growing at a normal pace unless you have a flood of unexpected deposits."