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Informist, Friday, Sept. 11, 2026

 

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--CNBC-TV18: RBI Malhotra: FCNR(B) success shows we can get FX flows 
--CONTEXT: RBI Governor Malhotra's remarks in interview with CNBC-TV18 
--CNBC-TV18: RBI Malhotra: Good FCNR(B) flows show econ fundamentals strong 
--CNBC-TV18: RBI Malhotra: FCNR(B) scheme was fairly priced 
--CNBC-TV18: RBI Malhotra: FCNR(B) scheme fairly priced, stabilised FX mkt 
--CNBC-TV18: RBI Malhotra:Don't think we paid a high cost for FCNR(B) scheme 
--CNBC-TV18: RBI Malhotra:Almost 50% of  FCNR(B) scheme inflow in 5-yr tenure 
--CNBC-TV18: RBI Malhotra: Govt taking opportunity to do reforms, FTAs 
--CNBC-TV18: RBI Malhotra: FTAs should help competitiveness in exports 
--CNBC-TV18: RBI Malhotra:Govt took steps to reduce dependence on oil import 
--CNBC-TV18: RBI Malhotra: Remittances may be frontloaded due to W Asia war 
--CNBC-TV18: RBI Malhotra: Don't see remittances falling FY27 vs FY26 
--CNBC-TV18: RBI Malhotra: Current account situation is improving 
--CNBC-TV18: RBI Malhotra: Current series of reforms work in progress 
--CNBC-TV18: RBI Malhotra: Confident on BoP surplus medium-term 
--CNBC-TV18: RBI Malhotra: Will need to support FX markets 
--CNBC-TV18: RBI Malhotra: Some liquidity will be drained on its own 
--CNBC-TV18: RBI Malhotra:Have tools to withdraw liquidity other than VRRR 
--CNBC-TV18: RBI Malhotra:Could do OMO sales, swaps as necessary on liquidity 
--CNBC-TV18: RBI Malhotra: Nothing off the table on liquidity mgmt 
--CNBC-TV18: RBI Malhotra: Aim to maintain apt liquidity 
--CNBC-TV18: RBI Malhotra: Aim for weighted avg call rate at repo rate 
--CNBC-TV18: RBI Malhotra: Don't see overheating in consumption 
--CNBC-TV18: RBI Malhotra: Credit growth secular across various sectors 
--CNBC-TV18: RBI Malhotra: Q1 growth very robust 
--CNBC-TV18: RBI Malhotra:Pvt consumption, fixed capital formation robust Q1 
--CNBC-TV18: RBI Malhotra: Exports held up in Q1, helped growth 
--CNBC-TV18: RBI Malhotra: Not entirely surprised by Q1 GDP growth 
--CNBC-TV18: RBI Malhotra: Food prices high; forecasts factor them in 
--CNBC-TV18: RBI Malhotra: Rise in crude to have some impact on inflation 
--CNBC-TV18: RBI Malhotra: Current CPI numbers aligned with our projections 
--CNBC-TV18: RBI Malhotra: Not apt to look at only avg inflation 
--CNBC-TV18: RBI Malhotra:Have to look at headline CPI, its composition, path 
--CNBC-TV18: RBI Malhotra:Supply chain disruptions have limited India impact 
--CNBC-TV18: RBI Malhotra: Inflation high due to food prices, fuel 
--CNBC-TV18: RBI Malhotra: Inflation expectations mildly elevated, contained 
--CNBC-TV18: RBI Malhotra: Have to see where CPI settles before MPC step 
--CNBC-TV18: RBI Malhotra: Higher bond yields do impact monetary policy 
--CNBC-TV18: RBI Malhotra: India bond yields rose less than other countries

 

NEW DELHI – Reserve Bank of India Governor Sanjay Malhotra Friday said the central bank may conduct open market operations to sell government securities or dollar-rupee sell-buy swaps to drain the surplus liquidity emanating from robust foreign currency non-resident (banks) deposits. The central bank was conscious that these deposits are exempted from cash reserve ratio calculations and will not have higher CRR or other requirements on them, Malhotra said in an interview to financial news channel CNBC-TV18.

 

"Nothing is off the table on liquidity management," the governor said. He also reiterated that the central bank's aim is to ensure adequate liquidity in the banking system to support the productive needs of the economy and keep the weighted average call rate aligned to the policy repo rate of 5.25%.

 

India's surplus liquidity -- as measured by the RBI's net liquidity absorbed -- has remained above INR 10 trillion since Sept. 3, which has dragged the operating target of monetary policy, the weighted average call rate, below the Standing Deposit Facility rate. Since Sept. 3, the weighted average call rate has been set below the RBI's Liquidity Adjustment Facility policy corridor.

 

Some of the liquidity overhang will be drained through the increase in currency in circulation over the next few months while the rest will be managed through a combination of tools, Malhotra said. He noted that the RBI's support to the foreign exchange market will also drain rupee liquidity. The RBI has been selling dollars in the spot market, which has limited the rupee's depreciation. It has also conducted dollar-rupee sell-buy swaps in the secondary market since Wednesday, according to dealers.

 

The central bank has enough tools to manage liquidity, besides the variable rate reverse repo auctions which, the governor noted, had not been able to push up overnight rates to the desired level. The RBI has been conducting these auctions of various tenures over the past five weeks, including a 30-day VRRR auction of INR 7 trillion Monday. Malhotra said the RBI was not surprised by the quantum of inflows India had received through the special swap window, which was closed a month ahead of schedule.

 

Provisional RBI data showed $136.38 billion of foreign capital was raised under the central bank's various schemes between Jun. 8 and Aug. 31, of which $127.23 billion were through FCNR(B) deposits alone. The success of the FCNR(B) scheme showed India can get robust foreign exchange inflows in a short period of time and was a testament to the economy's strong fundamentals, Malhotra said. The central bank had incentivised three- to five-year FNCR(B) deposits by absorbing all hedging costs under a concessional window, exempting these from CRR and statutory liquidity ratio requirements, and removing the prudential cap on interest rates offered under the scheme.

 

The flows helped India in financial stability and external sector resilience while also acting as a stabiliser for the dollar-rupee exchange rate and so the RBI was happy with the result, Malhotra said. The central bank chief did not see it as a cost as the RBI would deploy the dollars accrued into government securities abroad, leading to additional revenue. Around half of the FCNR(B) deposits under the special scheme were in the five-year bucket, while around 42% were in the three-year bucket. A minority were for four-year deposits, he said.

 

"Some people are comparing it to the three-year forward premium. I don't think that's the right way to do it; also, it's not the right price," the RBI governor said. "...I think it was fairly priced and it was important, I think, from the perspective of the Indian economy and the external sector resilience I mentioned."

 

EXTERNAL SECTOR

Economists forecast a balance-of-payments surplus of $65 billion to $100 billion in the financial year 2026-27 (Apr-Mar) from a deficit of $23.6 billion in FY26. Asked if this was sustainable, Malhotra said he was confident India would continue to have balance-of-payments surpluses in the medium term. The economy's energy intensity has been reducing over the past few years, including through government measures towards alternative fuels to reduce oil imports, he said. Crude oil prices have shot up since the war in West Asia began and Brent near-month futures, the global benchmark, touched nearly $110 a barrel Thursday.

 

Moreover, government and regulators are seizing the opportunity to bring in reforms, which have not ended and are a work in progress, the RBI governor said. The government's decision in June to exempt foreign portfolio investors from tax on government bond investments may prove to be a benefit if it leads to India's inclusion in more global bond indices, he said. Bloomberg Index Services Ltd. said at the end of July that it would continue to keep India's Fully Accessible Route bonds under review for inclusion in its flagship Global Aggregate Index. The inclusion is expected to bring in $25 billion of foreign portfolio investment over a year.

 

The various free trade agreements and other concessional pacts with several economies were also improving the competitiveness of India's exports. All in all, Malhotra said India's current account situation was improving and even remittances, though frontloaded due to the war in West Asia, would not fall below the inflows in FY26. Personal transfer receipts, mainly remittances from Indians abroad, were nearly $145 billion in FY26 and $43 billion in Apr-Jun.

 

MONETARY POLICY, GROWTH, INFLATION

The impact of all the overseas triggers may be limited on India, where the impact of supply-chain disruptions has been contained well by government measures, according to the central bank chief. Though the recent rise in bond yields was something that would affect monetary policy decisions, as it has an impact on growth and inflation, the extent of the rise has been much less than in global markets, he said. India's 10-year benchmark government bond yield topped 7% in September after three months, being kept in check before that due to the positives from the FCNR(B) scheme.

 

The current policy repo rate had been set at a time of benign inflation which is now seen normalising towards the RBI's medium-term target of 4%, though underlying inflation is still "very low", Malhotra said. The RBI's Monetary Policy Committee at its last meeting in August held the policy repo rate at 5.25% and continued with a "neutral" monetary policy stance.

 

The data also showed a lack of persistence in inflation and the recent rise in inflation was largely led by food inflation, due to a base effect, and higher fuel prices, he said. India's headline CPI inflation is likely to climb to a 20-month high of 4.8% in August, according to an Informist Poll. The rise in food prices had been factored into the RBI's forecasts, he said, which show headline inflation averaging 5.0% in FY27 and peaking at 5.9% in the December quarter.

 

He said that looking at only average headline inflation would not be appropriate to take monetary policy actions, with internals of inflation and the path of price rise being equally important. "It will be important to look at the trajectory and where inflation settles before monetary policy (action)," Malhotra said. He also said that while inflation expectations had risen slightly, they were still largely contained.

 

Despite robust growth in the June quarter, Malhotra denied that the economy showed any signs of overheating, with credit growth secular across various sectors instead of being concentrated in consumption. He noted that both private consumption and gross fixed capital formation were robust, with resilient exports also contributing to the headline figure.

 

India's GDP growth in the June quarter was 7.8%, higher than the central bank's forecast, made in August, of 7.0%. The reading was not surprising but diverged from the data that the Monetary Policy Committee had while taking its last monetary policy decision. The data had shown a growth slowdown in the June quarter from March, Malhotra said. However, he said it would not be appropriate for him to offer his opinion on the GDP reading and the panel would make an assessment at its next meeting in early October.  End

 

US$1 = INR 95.55

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Compiled by Aaryan Khanna

Filed by Rajeev Pai

 

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