- RBI expanded Fully Accessible Route to include new long-term G-secs and removed cap on short maturity
- An influx of $40-75 billion capital is needed to stabilize rupee at 92-93 levels, say SBI and Kotak
- Govt tax exemption on FPI gains boosts post-tax returns by Rs 4,000-5,000 crore, aiding bond index inclusion
The Reserve Bank of India's decision to boost dollar influx in the economy is a move aimed at flipping over the depreciation narrative for rupee, according to research notes by brokerages.
RBI expanded the Fully Accessible Route to include new 15, 30 and 40-year G-secs and removed the 30% short-maturity cap on Friday, in a bid to cushion Rupee's historic fall.
For the Indian currency to pull back to 92-93 levels, an influx of at least $40 billion capital is required, SBI outlined; whereas Kotak expects the full package may bring $50-75 billion.
Additionally, with Rs 1.5 lakh crore of the new tenors yet to be issued and Rs 4.06 lakh crore headroom under the general route, SBI is banking on stronger FPI demand, lower long-end yields, lower government borrowing costs and better liquidity.
Besides that, the brokerages noted Government tax exemption on interest and capital gains for FPIs adds post-tax returns of Rs 4,000-5,000 crore on top of Rs 500-1,000 crore, solidifying India's case for global bond index inclusion.
The Central Bank will bear full hedging costs at 2.5% annually for the currency on fresh 3-5 year FCNR(B) deposits till Sept 30, 2026, along with Statutory Liquidity Ratio and Cash Reserve Ratio. FCNR(B) deposits are foreign currency deposits made by Non-Resident Indians (NRIs) with Indian banks.
Accordingly, SBI sees banks offering over 5.5% rates on foreign currency deposits or similar instruments on the back of 5-year tenors reducing rollover risk.
Further, a concessional FX swap for 3-5 year PSU External Commercial Borrowings (ECB) till September 30 should would likely drive overseas borrowing by public sector companies like PFC, REC, NTPC after ECB/FCCB flows fell 30% in FY26 to $42.9 billion.
Lastly, both brokerages expect the MPC to pause in August, keeping the repo rate at 5.25% with a "neutral" stance, even as it inflation watch intensifies and growth forecasts are trimmed.
In its latest decision, the MPC unanimously held the repo at 5.25% and retained neutrality. RBI cut FY27 real GDP growth 30 bps to 6.6% on weak global demand, supply chain disruptions and El Nino risks.
Q3 growth was lowered 50 bps to 6.5%. CPI inflation for FY27 was revised up 50 bps to 5.1%, with Q3 at 5.9% and Q4 at 5.4%. Core CPI rose 30 bps to 4.7%.
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