RBI Forex Swap Facility Attracts Over $72 Billion

The Reserve Bank of India's (RBI) special forex swap facility has attracted $72.85 billion in foreign exchange inflows as of August 21, surpassing initial expectations and underscoring a strong response to the central bank's efforts to augment forex liquidity and support the rupee.

According to data reported by authorized dealer banks, Foreign Currency Non-Resident (Bank) deposits accounted for the majority of the inflows at $65.397 billion, followed by Overseas Foreign Currency Borrowings (OFCBs) at $4.86 billion and External Commercial Borrowings (ECBs) at $2.591 billion.

The RBI had introduced the special USD-rupee concessional swap facility on June 8 to encourage fresh foreign currency inflows through FCNR(B) deposits as well as eligible OFCB and ECB inflows, with a goal of strengthening domestic liquidity and providing support to the foreign exchange market at a time when the rupee and the country's forex reserves had come under pressure.

However, some analysts suggest that the RBI may have closed the swap facility prematurely, citing the high cost of hedging these deposits as a potential factor. An SBI Research report estimates the potential cost to the RBI could be around 15% of the amount raised, translating into a $10.5 billion cost assuming $70 billion is raised through the facility.