Summary:
The rupee fell to a 17-day low of ₹95.60 per US dollar after the RBI advanced the closure of its special FCNR(B) swap window to August 31. The facility attracted nearly $57 billion in policy-driven foreign currency inflows, helping boost forex reserves above $700 billion. Rising crude prices and expectations of tighter liquidity also pressured the rupee and pushed government bond yields higher.
The Indian rupee came under renewed pressure after the Reserve Bank of India advanced the closure of its special concessional swap facility for FCNR(B) deposits to August 31 from September 30, while rising crude oil prices added to importer demand for dollars. The rupee depreciated 0.2% on August 17 to close at 95.6025 against the US dollar, its weakest level in about two weeks, despite intervention by the RBI.
Importantly, normal FCNR(B) deposits are not being discontinued. Only the special facility that allowed banks to hedge eligible foreign currency deposits at concessional terms is ending a month earlier.
Read About: RBi retains FCNR(B) as Foreign Inflows increase
Why RBI Closed the Window Ahead of Schedule
The special facility was introduced in June to attract foreign currency inflows and strengthen India’s balance of payments. Its response significantly exceeded initial expectations.
Between June 8 and August 13, banks mobilised 52.3 billion US dollars through FCNR(B) deposits. Another 1.7 billion US dollars came through swap facilities for external commercial borrowings and 2.8 billion US dollars through overseas foreign currency borrowings by authorised lenders. The latter two windows will continue until December 31, 2026.
Overall policy-driven foreign currency inflows have reached nearly 57 billion US dollars, helping push India’s foreign exchange reserves above 700 billion US dollars, a four-month high.
The early closure indicates that the RBI believes the facility achieved its objective faster than expected. Continuing it could have created additional liquidity, future swap liabilities and costs without providing proportionate benefits.
Crude Near 90 US Dollars Adds Pressure on Rupee
The timing of the closure coincided with another problem: higher oil prices. Brent crude climbed around 1% to 89.2 US dollars per barrel on August 17 amid continued West Asian tensions. It subsequently crossed 91 US dollars per barrel on August 18.
Higher crude prices are negative for India because the country imports most of its oil requirements, increasing dollar demand and potentially widening the current-account deficit.
Check Out: How rising Crude Oil prices will affect Indian markets
The rupee had already depreciated around 11% in FY26 and touched a record low of 96.96 against the US dollar on May 20. RBI intervention has nevertheless kept currency movements relatively contained during August.
Bond Yields Rise as Markets Reassess Liquidity
The impact was also visible in government bonds. The benchmark 10-year government bond yield rose 5 basis points to 6.79%, while the five-year yield increased 8 basis points to 6.41%. The rise reflected expectations that ending the concessional FCNR(B) facility earlier could reduce incremental banking-system liquidity.
