Centre sees no cost pain for RBI on dollar deluge

The Central government anticipates no significant financial burden on the Reserve Bank of India (RBI) due to the substantial inflows of $127 billion through forex schemes, according to sources familiar with the plans. These concerns were fueled by potential expenses related to hedging and liquidity management. However, the RBI is anticipated to generate strong returns on these funds when invested in US treasuries experiencing a significant increase in interest rates, which would offset any anticipated costs for the central bank.

The 52-week US Treasury bill yield stood at 4.14% as of August 31, 2026, according to the sources. The inflows are expected to alleviate the central bank's intervention costs for currency volatility, as the record proceeds are projected to stabilize markets. Two costs are associated with these flows: the cost of managing excess liquidity through sterilization and the risk of exchange rate fluctuations.

Economists estimate that the hedging costs could amount to around Rs 36,000 crore over the next three to five years, representing about 3% of the total Rs 12 lakh crore collected.

The Reserve Bank of India maintains a Contingent Risk Buffer (CRB) to cover potential monetary, financial stability, and operational risks. In the fiscal year 2025-26, this threshold was set at 6.5% of the central bank's total balance sheet size. However, some economists believe that the RBI could emerge without significant stress on the rupee, similar to the 2013 scenario where the currency recovered swiftly despite initial plunges.

The RBI may even gain from the situation, with any potential losses offset by returns earned from deploying the foreign currency assets in US treasuries.