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Why rupee remains weak despite record FCNR flows

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Why rupee remains weak despite record FCNR flows

The $132.98 billion FCNR mobilisation does not mean that an equivalent amount of fresh dollar demand for rupees entered the spot market. The foreign currency is being placed with banks and swapped with the RBI, so the immediate effect is to increase the RBI's foreign currency resources and inject rupee liquidity into the banking system.

FCNR inflows give the RBI foreign currency while providing banks with rupee liquidity, but do not represent an equivalent amount of fresh spot-market demand for rupees. The $143.596 billion total inflow comprised $132.98 billion FCNR(B), $5.32 billion OFCB and $5.296 billion ECB, strengthening the RBI's foreign currency resources. Forex reserves fell $4.924 billion to $780.782 billion in the week ended September 11, but the decline cannot be treated as equivalent to RBI dollar sales because valuation changes also affect reserves. High crude prices, importer dollar demand and elevated US yields continue to weigh on the rupee despite the larger foreign currency cushion created by FCNR inflows.

98 billion mobilisation through FCNR(B) deposits under the Reserve Bank of India's special forex swap facility, as the inflows have strengthened the country's foreign currency and liquidity buffers but have not eliminated the underlying demand for dollars . Elevated crude prices, importer demand and higher global yields continue to put pressure on the currency. 296 billion through external commercial borrowings. The FCNR(B) deposits were mobilised by August 31, while the ECB and OFCB windows remain open until December 31.



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