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April 15, 2025 – India’s central bank governor has reiterated that the country expects to attract at least $80 billion in foreign-currency inflows through a series of measures designed to stop the rupee’s slide, even as the early closure of a key swap window raises questions about the program’s cost and sustainability.
Reserve Bank of India (RBI) Governor Sanjay Malhotra, in an interview published Thursday, said the flows have been “stronger than expected” and that the measures—which include subsidizing hedging costs for banks offering foreign-currency non-resident deposits (FCNR(B))—have already pulled in $56.85 billion as of mid-August. The remaining $23 billion or so is expected from overseas foreign currency debt and external commercial borrowings, he noted.
“You will appreciate that the flows have been stronger than we expected and even stronger than what most market participants expected,” Malhotra told the Financial Express.
The RBI last week surprised markets by moving the closure of the FCNR swap window forward by a month to August 31, a move Malhotra defended as a “calibration” rather than a reversal. “There is a diminishing marginal utility of every dollar that is swapped, while the cost rises because the liquidity has to be sterilized for longer,” he said.
The program, though effective in attracting dollars, comes with a growing price tag. The RBI subsidizes banks’ hedging costs, and although it does not currently recognize mark-to-market (MTM) losses, internal calculations show that setting aside provisions for these costs could reach ₹300 billion in the first year and potentially accumulate to ₹1 trillion over five years, according to a person familiar with the matter.
That burden could drag on the RBI’s profitability and even reduce the dividend it pays to the government, the person added, speaking on condition of anonymity because the discussions are preliminary. The RBI did not respond to a request for comment on whether it plans to recognize these MTM costs.
Despite the inflows, the rupee has barely moved from its level on June 5, when the measures were rolled out. This contrasts with the sharp rally seen in 2013, when the central bank last opened a similar overseas dollar window. Analysts say the current environment—including global dollar strength and capital outflows from emerging markets—has limited the impact.
Malhotra, however, argued that the exchange rate remains market-determined and that the RBI’s net short forward dollar position is manageable. “Our policy on intervention remains the same, which is to curb excessive volatility and any undue speculative activity,” he said.
The governor’s comments come as the RBI has built one of the world’s largest bearish dollar bets over the past two years to support a persistently weak rupee. Unwinding that position without destabilizing the market remains a key challenge. Malhotra pointed to earlier liquidity swaps and the recent measures as tools that will help manage the short forward position.
In a fresh exclusive insight, a senior economist at a global rating agency, speaking on background, noted that the RBI’s strategy is essentially a “sterilized intervention” that prevents the rupee from overheating while keeping inflation in check. “The early closure of the swap window signals that the RBI is comfortable with the current level of reserves and wants to avoid piling on additional sterilization costs,” the economist said.
With the FCNR window now closed, market participants will watch for any new measures to support the currency. Some analysts expect the RBI to shift toward direct intervention in the spot market or introduce new instruments like dollar-rupee swaps. The central bank’s next policy meeting in October will likely provide more clarity.
For now, the $80 billion inflow target remains a strong signal of intent, even as the costs and timing of the program continue to stir debate.
