RBI’s Policy Push Could Help India Maintain Balance-of-Payments Buffer Of Up To $75 Billion In FY27

The Reserve Bank of India's (RBI) efforts to attract foreign currency inflows may enable India to sustain a balance-of-payments surplus of $65-75 billion during the fiscal year 2027, as per a report from Bank of Baroda. The RBI's recent initiatives are seen as a significant success, bolstering India's external standing amidst heightened geopolitical tensions.

Record High Forex Reserves The RBI's initiatives led to substantial inflows, amounting to approximately $136.4 billion, significantly enhancing India's forex reserves and providing the central bank with more flexibility to handle currency volatility. Record-breaking Reserves India's foreign currency assets surged by $47.9 billion, pushing total foreign exchange reserves to an all-time high of $729.3 billion.

Stable Economic Outlook Despite ongoing geopolitical uncertainties, the RBI's measures provide India with a resilient stance to absorb external shocks, as noted in the report. Current Account Deficit Expected The current account deficit is anticipated to be around 1-1.25% of GDP, backed by robust services exports and substantial remittances.

FCNR(B) Deposits Fuel Inflows A major contributor to the inflows was FCNR(B) deposits, accounting for $127.2 billion, or more than 90% of the total mobilization. FCNR(B) deposits' interest rates were hiked by several banks to make them more appealing to Non-Resident Indians (NRIs). RBI Absorbs Excess Liquidity The RBI has been mitigating excess liquidity through Variable Rate Reverse Repo (VRRR) auctions, totalling Rs 53.5 lakh crore between August 6 and September 2.

Efforts to Strengthen External Buffers These actions underscore the RBI's commitment to strengthening India's external financial buffers amid an increasingly volatile global landscape.