FCNR Inflows Could Top $80 Billion Despite Early RBI Closure, BofA Says

Foreign currency inflows through FCNR(B) deposits could exceed $80 billion despite the Reserve Bank of India bringing forward the closure of its swap window, Bank of America Securities said. The brokerage raised its estimate from $60 billion-$70 billion, citing stronger-than-expected flows since the facility was introduced.

The RBI has moved the deadline for banks to use the zero-cost hedging facility for FCNR(B) deposits to Aug. 31 from Sept. 30 after receiving $52.3 billion through the deposits between June 8 and Aug. 13.

"We revise this up to the USD 80bn+ given stronger flows," Bank of America said in its India Watch report.

The brokerage said the earlier closure would mean flows would be below the level that could have been reached if the window had remained open until September. However, it expects the revised estimate to have "some clear upside" from its earlier $60 billion-$70 billion forecast.

The RBI also received $1.7 billion through swap facilities for external commercial borrowings and $2.8 billion through overseas foreign currency borrowings by authorised lenders between June 8 and Aug. 13.

BoP outlook

Bank of America said the inflows would support India's balance of payments, even as the current account moved into a $3.1 billion deficit, or 0.3% of GDP, in the June quarter.

The brokerage said the current account deficit was driven by a higher merchandise trade deficit, partly offset by stronger services exports and remittances.

It expects the current account deficit to remain moderate in the second quarter, with risks around the deficit being lower if goods exports improve or remittances remain firm.

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