The Reserve Bank of India's measures to attract foreign capital have drawn a strong response from investors, with banks mobilising nearly $32 billion, largely through Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits, RBI Governor Sanjay Malhotra said in an interview with businessline.
According to the Governor, government securities have also received more than $7 billion in foreign inflows since the measures announced in the June monetary policy.
Addressing concerns that the inflows were largely a recycling of existing deposits, Malhotra said the central bank has sufficient tools to manage any liquidity impact. He added that the inflows have strengthened India's external position amid geopolitical uncertainty and volatile global capital flows.
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On concerns over the RBI bearing the hedging cost of fresh FCNR(B) deposits and offering concessional forex swaps for external commercial borrowings by public sector entities, Malhotra told businessline that the issue should not be a cause for concern.
"It is not something which should be a matter of concern because we have a foolproof system of insuring ourselves. So, whatever dollars we get, the excess foreign currency is invested in foreign assets. The risk, therefore, is not there," he said.
Malhotra said the measures should be viewed against the backdrop of challenging global conditions for emerging markets and are expected to further strengthen India's balance of payments and support currency stability.
On the rupee, the Governor said its recent depreciation does not indicate weakness in India's economic fundamentals. He attributed the pressure on the currency to geopolitical tensions, a stronger US dollar and broader volatility across emerging markets.
"We do not target any specific exchange rate or band for the rupee. Our intervention, whenever necessary, is targeted to curb excessive volatility," Malhotra told businessline, adding that the rupee is "not overvalued" and could even be considered undervalued in both nominal and real effective exchange rate terms.
He also highlighted a current account surplus during April-May, strong services exports, resilient remittance inflows, rising merchandise exports and improving foreign direct investment flows as indicators of the country's external sector strength.
On foreign exchange reserves, Malhotra said the RBI continues to manage reserves based on the principles of safety, liquidity and returns, while periodically reviewing reserve deployment.
Speaking on monetary policy, the Governor reiterated that inflation control remains the RBI's primary objective, while the central bank remains mindful of growth risks. He said the Monetary Policy Committee will continue to follow a data-dependent approach in balancing growth and inflation.
"Our primary mandate is inflation and price stability. Therefore, we will do whatever is required first, to keep price stability and then, to see to what extent we can support growth," he told businessline.
While inflation has moved above the 4% midpoint of the RBI's target band, Malhotra said policymakers do not currently see signs of broad-based price pressures becoming entrenched.
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