Rupee gains on FCNR(B) deposits reverse amid crude price spike: RBI report | Finance News
The Indian rupee’s gains earlier this month driven by FCNR (B) deposit flows under the Reserve Bank of India’s concessional swap window, reversed by the latter half of September due to the spike in crude oil prices, noted an article on the state of the economy in the central bank’s monthly bulletin.
Commercial banks mobilised $133 billion FCNR(B) since the swap scheme was operationalised in June. The scheme was closed one month ahead of its original September 30 deadline. So far in September, the Indian unit has depreciated 0.7 per cent and 5 per cent since the West Asia war which started late February.
“West Asia tensions and high crude oil prices caused the Indian rupee (INR) to depreciate for most of August. Strong FCNR(B) deposits led to brief recoveries in early September, but these gains reversed in the later part of the month on account of higher crude oil prices,” said the article, authored by RBI staffers with the guidance of Deputy Governor Poonam Gupta.
The article is based on the views of its authors and does not represent RBI’s perspective.
The strong FCNR(B) flows also resulted in surplus liquidity in August which surged in September, the report noted, while highlighting that system liquidity moderated amidst tax related outflows and RBI’s durable liquidity measures during the second half of September. Surplus liquidity, as measured by banks parking funds in the liquidity adjustment facility window moderated to Rs 4.27 trillion on Thursday.
The article also noted that headline inflation inched up to 4.8 per cent in August, driven by the food and beverages group along with a pickup in fuel and core components. “Core inflation excluding precious metals has also increased from ultra-low levels of recent months,” the article flagged.
Economic growth on the other hand, remained resilient despite challenging global environment. “The Indian economy recorded a strong GDP growth in Q1:2026-27. High frequency indicators through August reflected sustained demand with segments of industry and services sectors displaying resilience. Overall, the economy performed strongly despite external headwinds,” it said.
The article also highlighted a strengthening of FDI flows in July, with net FDI hitting $7.4 billion, the highest level in five years. Net FDI in June was $2.07 billion and just $79 million in May. Gross FDI inflows, before factoring in outbound investments from India, were $14.6 billion in July, compared to $8.8 billion in June, and $6 billion in May.
Communication, Financial and Computer Services were the major FDI recipient sectors, with over 80 per cent of the equity inflows in July. Mauritius, the UAE, and the US were the major source countries, accounting for about 70 per cent of the FDI equity inflows.
