RBI Governor Defends Early Closure of FCNR (B) Swap Window
Sanjay Malhotra says stronger dollar inflows prompted data-driven deadline revision
Mumbai: After coming under criticism for announcing to prematurely close the special foreign currency deposit schemes a month before the earlier scheduled closure date, the Reserve Bank of India (RBI) governor Sanjay Malhotra defended his decision, saying that the move is a “calibration” based on changing market conditions.
“It will not be correct to call it a U-turn; it is rather a calibration,” Malhotra said that the decision was “well-thought-out, calibrated, prudent and data-driven.”
Malhotra, during the monetary policy press conference on August 5, had stated that there was no proposal under consideration for an early closure of the FCNR B scheme but a week later announced plans to advance the closure by a month, taking markets by surprise.
The governor, in an interview to a business daily, said that market conditions were changing rapidly at the time. He pointed to his use of the phrase “as of now” when he said there was no proposal to advance the deadline.
“I would like to highlight the use of the words ‘as of now’ when I mentioned that there was no proposal to advance the last date,” he said.
According to him, the decision was taken as foreign currency inflows were stronger than expected.
“There is a diminishing marginal utility of every dollar that is swapped. At the same time, there is an increasing marginal cost because you need to sterilise it for a longer period,” Malhotra said.
He added that banks and other stakeholders had been given more than two weeks to make arrangements before the revised deadline.
Malhotra said that he expects at least $80 billion in foreign currency inflows through the three special forex swap schemes launched in June.
The RBI announced the USD-INR Forex Swap facility covering FCNR(B) deposits, External commercial borrowings (ECBs) and Overseas foreign currency borrowings (OFCB) inflows on June 08, 2026 to attract dollar flows and shield the falling rupee.
On August 14, the central bank said that the scheme brought $56.8 billion worth of inflows, with FCNR deposits accounting for $52.3
billion. Based on the encouraging response, the deadline for the swap facility was moved forward to August 31.