The Indian rupee declined to a two-week low following the Reserve Bank of India’s premature closure of the FCNR-B swap facility, with traders reacting to reduced near-term support and ongoing dollar purchases by importers.
The rupee weakened to a two-week closing low on Monday as traders reacted to the Reserve Bank of India’s decision to end early a concessional swap facility for attracting fresh Foreign Currency Non-Resident-Bank deposits, while importers continued to buy dollars. The currency finished at 95.61 per dollar, compared with 95.43 in the previous session, after trading between 95.48 and 95.62, according to market data cited by The Hindu BusinessLine.
Traders also said the central bank was seen in the market selling dollars to steady the currency. The move came after the RBI on August 14 decided to withdraw the limited-period swap support sooner than planned, trimming one source of near-term rupee support.
According to the RBI, the concessional swap window will now apply only to FCNR-B deposits with maturities of three to five years mobilised until August 31, 2026, rather than September 30. Banks can use the facility with the RBI until September 11, 2026, instead of October 16. Earlier reporting by Business Standard and LiveMint showed the central bank had opened the window in June to draw foreign currency inflows, ease hedging costs for banks and support the rupee, while exempting qualifying deposits from cash reserve ratio and statutory liquidity ratio requirements.
Soumya Kanti Ghosh, group chief economic adviser at State Bank of India, said the early closure may indicate that the target for FCNR(B) mobilisation has already been met. He estimated another $25 billion to $30 billion could still arrive before the end of August, taking total collections to about $85 billion. Ghosh also said the cost of the swap should be viewed against India’s foreign-exchange reserves, which he put at about $700 billion, and argued the expense was small relative to that stock. The Hindu BusinessLine reported that SBI’s research arm sees the five-year hedging cost of about $10.5 billion as modest when measured against reserves and expected reserve growth.
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