The Reserve Bank of India’s (RBI) window to attract foreign currency deposits that saw shutters drop on 31 August, one month ahead of the initial schedule, has brought in a flood of dollars. RBI on Wednesday said that as much as $127.2 billion has been collected by banks as forex deposits.
A further $9.2 billion came in through overseas foreign currency and external commercial borrowings, which remain open, taking total inflows since the mop-up began to $136.4 billion.
RBI’s forex reserves have bulged as a result, having recently hit a record $729 billion, and while excess liquidity has been something of a challenge, India’s central bank is better placed to contain rupee volatility in case the currency suffers the fallout of balance-of-payments stress.
A rupee slump has been a put-off for foreign investors in Indian assets, with their dollar returns eroded by its weakness. A focus on the exchange rate, however, interferes with monetary policy.
For this reason, if not the cost RBI may eventually have to bear for the forex-risk hedge it granted deposit-taking banks, no one should miss the scheme that just ended. Except, perhaps, overseas Indians who got a splendid chance to make gains.