RBI's June measures to attract dollar inflows have brought in nearly $32 billion so far, and are expected to provide a boost to India's balance of payments,  RBI Governor Sanjay Malhotra said in an interview. 

Key Highlights

• RBI measures have drawn nearly $32 billion in dollar inflows, mostly through FCNR deposits, says Malhotra.
• RBI kept the repo rate at 5.25%, calling it appropriate for current growth-inflation conditions.

According to Sanjay Malhotra, the bulk of the nearly $32 billion raised through the measures has come through the Foreign Currency Non-Resident (Bank), or FCNR(B), deposit scheme. The scheme allows non-resident Indians (NRIs) and other eligible investors to hold foreign currency deposits with Indian banks, helping bring foreign currency into the banking system without immediately exposing depositors to fluctuations in the rupee.

Notably, Sanjay Malhotra said the RBI had not seen evidence that a bulk of the FCNR inflows represented the rebooking of existing deposits — a significant clarification, since large-scale rebooking would suggest the inflows didn't represent substantial fresh foreign currency entering the country.

Around $7 billion has entered India through foreign portfolio investments (FPIs) in debt securities, following tax changes aimed at making Indian debt markets more attractive to overseas investors, Malhotra said. These foreign portfolio inflows into debt securities can help provide additional foreign currency to the country while deepening participation in India's bond market.

RBI Governor Sanjay Malhotra said the dollar inflows had not fully translated into rupee liquidity in the financial system, with an increase in government cash balances partly responsible. His comments highlight the role of government cash management in determining liquidity conditions in the banking system — even when foreign currency enters the country, its impact on domestic rupee liquidity can be influenced by government cash balances and the RBI's operations.

No Change in RBI's Rupee Policy

Sanjay Malhotra said there had been no change in the RBI's policy toward the rupee, noting that the central bank intervenes in the foreign exchange market only to curb excessive volatility. The RBI has repeatedly maintained that it does not target a particular level for the rupee, with intervention aimed at ensuring orderly market conditions and preventing sharp, disorderly currency movements. Malhotra also said it would be reasonable to conclude that the rupee was not undervalued at its current level, despite pressure from global economic uncertainty, capital flows, and concerns over energy prices.

Also Read: RBI Unwinds Record $106.7 Bn Book as Rupee Nears 9th Losing Year

Repo Rate Appropriate Amid Growth-Inflation Dynamics

On monetary policy, Malhotra said the current policy repo rate was appropriate for prevailing growth and inflation conditions. The RBI has kept the repo rate at 5.25% as it balances supporting economic growth with the risk of inflationary pressures.

Sanjay Malhotra said generalized inflation pressures remained modest so far, but warned that the risk of higher food and fuel prices translating into a broad-based inflation environment was real - noting that higher fuel prices can raise transportation and production costs across the economy, while food price pressures can affect household inflation expectations and wage demands. The comments suggest the RBI remains comfortable with its current policy stance but is alert to the risk that food and fuel price shocks could become more widespread.