The central bank may prioritise closing its $137 billion open short forward dollar positions , with the FCNR(B) deposits received , according to experts and industry insiders.
“The RBI has an outstanding short forward position of USD 137 Bn. If the RBI decides to not roll over the outstanding positions the INR liquidity will be absorbed from the banking system and RBI may use the excess FX reserves generated from the FCNR (B) scheme for delivering the dollars,” said Shashi Dhar, Chief General Manager of Treasury & Global Markets at Bank of Baroda. Short forward dollars are currency derivative contracts where RBI commits to sell dollars at a future date at a predetermined rate. This is used to defend the rupee without drawing down spot reserves immediately.
The central bank had already begun absorbing rupee liquidity to make sure call rates don’t fall below policy rate, he continued. Mr. Dhar further said that liquidity is at ₹6.5 lakh crore and RBI may absorb some of this to make sure short-term money supply does not feed into inflation and keep borrowing cost aligned with policy rate. This became important as the RBI signalled an expectation of higher inflation, in its monetary policy committee meeting minutes.
Meanwhile, banks may be inclined to use this to “bolster their asset-side books and reduce their dependence on wholesale deposits in the immediate term” Mr.Dhar said, adding that in the long term, they can use the excessive liquidity to fund credit growth.
One of the predominant reasons for introducing the FCNR(B) scheme was to arrest increasing foreign exchange rate. The rupee has become cheaper by 7.22% against the dollar, trading at around ₹96 against the greenback.
Economists however express their concerns regarding structural depreciation of the rupee even amid whopping FCNR(B) inflows. “FCNR is one of the aspects that we tried to consider to create a solution to a problem that was a perfect storm but for us to become extremely secure with the way we manage our currency, we will need to get embedded in global value chains,” said Garima Kapoor , Deputy Head of Research and Economist at Elara Capital. “ In my view, FCNR or no FCNR, I do not think the rupee has a pathway for structural appreciation,” she said.
Published – September 02, 2026 09:34 pm IST
