Reserve Bank of India Governor Sanjay Malhotra said the central bank's record net short forward-dollar position remains manageable, anchoring his defense of the decision to close the FCNR(B) swap window one month ahead of schedule.
Malhotra attributed the confidence to liquidity infusions from previous swaps and facilities designed to strengthen India's balance of payments. The RBI anticipates the three schemes—FCNR(B), external commercial borrowings, and overseas foreign currency borrowings—will attract at least $80 billion in capital.
Malhotra defended the early closure as a "well-thought-out, calibrated, prudent and data-driven response to evolving conditions," rejecting suggestions of a policy reversal. He said the action demonstrated the central bank's ability to remain flexible and data-dependent.
When asked about his August 5 statement that ruled out an early closure, Malhotra clarified he had used the phrase "as of now," indicating the position was not definitive. He also noted the RBI had committed to keeping stakeholders informed, leaving room for a future decision.
Inflows had surpassed RBI and market expectations. Malhotra explained that prolonged sterilization of swapped dollars created a rising marginal cost, reducing the utility of each additional dollar attracted. Stakeholders had more than two weeks to make arrangements, which the RBI deemed sufficient.
On the central bank's balance sheet treatment, Malhotra said foreign currency assets from swaps would increase the RBI's asset base, while the outstanding forward leg would be recorded as a contingent liability remaining off-balance-sheet.
Malhotra reiterated that the exchange rate remains market-determined. The RBI's intervention policy targets excessive volatility and undue speculation, he said, with the central bank committed to orderly financial conditions.
India's current account deficit stands at approximately 1 percent of gross domestic product, well within manageable ranges. The RBI chief said strong domestic fundamentals are expected to sustain capital inflows.
