RBI Governor Says Capital Inflow Measures Have Pulled In $32 Billion, Calls Rupee Undervalued

India's foreign capital attraction measures have drawn a stronger response than markets anticipated. Reserve Bank of India (RBI) Governor Sanjay Malhotra told BusinessLine that banks have mobilised nearly $32 billion, largely through Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, while government securities have attracted more than $7 billion in foreign inflows since the June policy measures were announced.

Malhotra dismissed concerns that the inflows simply represent recycled existing deposits and said the central bank has adequate tools to manage any resulting liquidity pressure.

Numbers Since June

• FCNR(B) deposits and related instruments: Nearly $32 billion mobilised.

• Foreign inflows into government securities: More than $7 billion.

• Current account position: Surplus recorded during April and May 2026.

• Rupee assessment: Not overvalued, potentially undervalued on both nominal and real effective exchange rate terms.

On The Hedging Cost Question

Markets had flagged concern about whether the RBI bears undue risk by covering hedging costs on fresh FCNR(B) deposits and offering concessional forex swaps for external commercial borrowings (ECBs) by public sector entities.

Malhotra said the central bank operates a foolproof system for managing that exposure. Any excess foreign currency received is invested in foreign assets, removing the risk from the domestic balance sheet entirely.

RBI Sees Strong External Sector Despite Rupee Depreciation

Malhotra attributed recent currency depreciation to geopolitical tensions, dollar strength and broader emerging market volatility rather than any domestic weakness.

The Reserve Bank of India does not target a specific exchange rate or band and intervenes only to curb excessive volatility. He pointed to strong services exports, resilient remittances, rising merchandise exports and improving foreign direct investment flows as evidence that the external sector remains fundamentally sound.

Inflation Control Remains RBI's Top Priority

Inflation control is the Monetary Policy Committee's primary mandate and that order of priority is not changing. While inflation has moved above the 4% midpoint of the target band, Malhotra said policymakers do not yet see broad-based price pressures becoming entrenched.

The committee's neutral stance preserves flexibility to move rates in either direction based on incoming domestic data rather than global central bank actions.

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