RBI’s FCNR(B) swap: Cost not the trigger
A recent report by SBI Research suggests that the Reserve Bank of India's (RBI) recent decision to close the FCNR(B) swap facility early may not have been primarily driven by the facility's hedging costs. The research group estimated that the cumulative hedging costs for the facility could reach approximately USD 10.5 billion over a five-year period.
However, this figure is considered relatively small compared to India's foreign exchange reserves. With current reserves estimated at around USD 700 billion, and a projected increase of approximately USD 20 billion annually, the cumulative hedging costs would only represent 1.45% of the current reserve stock and around 1.27% of the projected reserve stock.
Consequently, the report concludes that the cost of the FCNR(B) swap is unlikely to pose a significant trade-off against the central bank's broader objective of enhancing India's external liquidity and reserve position.
Written by urgent.news from The Economic Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
