RBI Forex Measures Attract Nearly $32 Billion As FCNR(B) Deposits Surge; Governor Says Rupee Is Undervalued

The Reserve Bank of India (RBI) has reported a strong response to its recent foreign exchange measures, with banks mobilising nearly $32 billion, primarily through Foreign Currency Non Resident Bank (FCNR(B)) deposits. The development comes alongside more than $7 billion of foreign investment into Indian government securities, reflecting growing overseas confidence in India's financial markets despite global uncertainty.

The strong inflows are expected to support India's balance of payments, strengthen foreign exchange reserves and improve overall currency stability. RBI Governor Sanjay Malhotra also stated that the Indian rupee is currently undervalued, adding that its recent weakness has been driven more by global factors than domestic economic fundamentals.

The latest development comes as investors continue to closely monitor the Indian rupee against the US dollar, the RBI's foreign exchange management strategy and broader currency market developments amid changing global market conditions.

RBI Forex Measures Mobilise Nearly $32 Billion

According to RBI Governor Sanjay Malhotra, the central bank's recent foreign exchange measures helped banks mobilise nearly $32 billion, with the majority of the inflows coming through Foreign Currency Non Resident Bank (FCNR(B)) deposits.

Apart from these deposits, foreign portfolio investors have invested more than $7 billion in Indian government securities since the measures were announced in June, highlighting continued international confidence in India's debt market despite challenging conditions across emerging economies.

Forex Inflow Snapshot

Particulars	Amount
FCNR(B) & Other Forex Mobilisation	Nearly $32 Billion
Foreign Investment In Government Securities	Over $7 Billion
Primary Objective	Strengthen External Sector & Currency Stability

RBI Says Rupee Is Undervalued

Governor Sanjay Malhotra stated that the Indian rupee has become undervalued following its recent depreciation, both in nominal and real effective exchange rate terms. According to the RBI, the weakness in the currency does not reflect deterioration in India's economic fundamentals but has largely been driven by geopolitical tensions, a stronger US dollar and broader volatility across emerging markets.

The Governor reiterated that the RBI does not target any specific exchange rate, adding that its market interventions are aimed solely at preventing excessive volatility rather than maintaining a fixed trading level.

Strong External Sector Supports Indian Economy

The RBI highlighted several positive indicators supporting India's external sector, including a current account surplus during April and May, healthy services exports, resilient remittance inflows, improving merchandise exports and rising foreign direct investment (FDI).

According to the central bank, these factors continue to strengthen India's balance of payments and provide support to the rupee despite ongoing global uncertainties. Investors also continue tracking developments across the Indian economy alongside the RBI's policy actions.

RBI Says Liquidity Risks Are Well Managed

Responding to concerns regarding the cost of hedging fresh FCNR(B) deposits and concessional foreign exchange swap facilities, Governor Malhotra said the RBI has adequate mechanisms in place to manage associated risks.

He explained that the foreign currency mobilised under these measures is invested in overseas assets, ensuring that the central bank remains protected while supporting liquidity within the domestic financial system.

Inflation Remains RBI's Top Priority

While acknowledging the importance of supporting economic growth, Governor Malhotra reiterated that price stability and inflation control remain the Reserve Bank's primary objective.

He said the Monetary Policy Committee (MPC) will continue following a data dependent approach, taking necessary measures to maintain inflation stability before considering additional policy support for economic growth. Although inflation has remained above the RBI's 4% target, policymakers do not currently see signs of widespread inflationary pressures becoming entrenched. Investors will continue tracking future RBI monetary policy decisions and their impact on financial markets.

Why This Matters For Investors

The strong response to the RBI's foreign exchange measures reflects continued confidence among overseas investors in India's macroeconomic fundamentals. Higher FCNR(B) deposits and increased investment into government securities strengthen India's external position while improving the country's ability to manage currency volatility.

The Governor's observation that the rupee is undervalued may also be viewed positively by currency market participants, particularly if global conditions stabilise and foreign capital inflows continue to improve.

Investor Takeaways

The RBI's latest forex measures have successfully attracted nearly $32 billion in overseas capital while foreign investors have added more than $7 billion to Indian government securities. Together, these inflows strengthen India's external sector and support long term currency stability.

Investors will continue monitoring future RBI monetary policy decisions, foreign capital flows, inflation trends and movements in the Indian rupee as these factors remain critical for financial markets.

What are FCNR(B) deposits?

Foreign Currency Non Resident Bank (FCNR(B)) deposits are fixed deposits maintained by Non Resident Indians (NRIs) in foreign currencies with Indian banks, helping attract overseas capital into India.

How much capital did the RBI's forex measures attract?

According to RBI Governor Sanjay Malhotra, the measures helped mobilise nearly $32 billion, largely through FCNR(B) deposits.

How much did foreign investors invest in Indian government securities?

Foreign investors invested more than $7 billion in Indian government securities following the RBI's forex measures announced in June.

Why did the RBI say the rupee is undervalued?

The RBI believes the rupee's recent weakness reflects global geopolitical tensions, US dollar strength and emerging market volatility, rather than weakness in India's economic fundamentals.

What is the RBI's current monetary policy focus?

The RBI has reiterated that inflation and price stability remain its highest priority, while the Monetary Policy Committee will continue to follow a data dependent approach when making policy decisions.