India’s recent FCNR(B) deposit mobilisation exceeds $52 billion, yet the rupee shows only marginal appreciation, highlighting different global influences compared to 2013’s currency recovery.
India’s latest FCNR(B) deposit drive has brought in more than $52 billion and, had the window stayed open until the original end-September deadline, total mobilisation including related foreign-currency borrowing could have been closer to $80 billion, according to The Hindu BusinessLine. The scale is impressive, but the rupee has not responded with the kind of rally seen during the last big mobilisation exercise in 2013.
That earlier programme, launched as markets were still digesting the “taper tantrum”, helped restore confidence and coincided with a sharp recovery in the currency. SBI Research said the rupee climbed from 65.70 per dollar at the end of August 2013 to 62.45 by the end of November, before strengthening further to 59.89 by March 2014. This year, by contrast, the rupee was about 95.71 per dollar on June 8 when the latest FCNR(B) window opened and was around 95.60 on August 17, implying only a marginal gain.
Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, said in the bank’s report that the impact on the rupee after the FCNR(B) announcement had been “surprisingly minimal”. Analysts argue the reason is not a lack of inflows, but a very different global backdrop. Gaura Sengupta, chief economist at IDFC First Bank, said the RBI’s intervention has been key to preventing a larger fall in the currency, and that FCNR(B) flows mainly give the central bank more room to defend the rupee rather than force it higher.
The Reserve Bank of India introduced the special swap facility on June 5 and opened it on June 8 to attract fresh three- to five-year FCNR(B) deposits at lower hedging costs. Business Standard reported that the scheme initially ran to October 16, with a one-year lock-in on the deposits, while later measures also included relief from reserve requirements and an extension of the special dollar swap facility for public sector banks. Mint and other outlets reported that mobilisation has moved rapidly, with inflows already exceeding the amount raised in 2013, but economists say that does not guarantee currency appreciation when global rates remain high and oil prices are a risk. In that sense, the latest drive appears to have strengthened the RBI’s firepower more than the rupee’s direction.
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