The rupee weakened and government bond yields hardened on Monday as the Reserve Bank of India decided to close its concessional FCNR(B) forex swap facility a month ahead of schedule, said dealers. The central bank had announced on Friday that the swap facility will now be available only for FCNR(B) deposits mobilised till August 31, 2026, and banks can avail of swaps under this facility with the central bank till September 11, 2026.
The scheme for external commercial borrowings (ECBs) and overseas foreign currency borrowings (OFCBs), however, will continue to remain open till December 31, 2026, as previously announced.
The rupee settled at 95.61 per dollar, down 0.17 per cent from the previous close of 95.44 per dollar. The local currency opened at around 95.48 and touched an intra-day low of 95.62 per dollar.
The yield on the benchmark 10-year government bond settled at 6.81 per cent, against the previous close of 6.76 per cent, as the early closure of the swap facility raised concerns over liquidity and the flow of dollars into the system.
As per the original schedule, the scheme was open for deposit mobilisation till September 30, 2026, with banks permitted to avail of the swap with the RBI till October 16, 2026.
“The rupee was under noticeable pressure, with rupee at around ₹95.60 per dollar 95.62. The immediate trigger is the RBI’s decision to bring forward the closure of its concessional FCNR(B) forex-swap facility to August 31, which surprised the market and raised concerns about the scale of future dollar inflows,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.
Persistent importer dollar demand and elevated Brent crude prices are also keeping pressure on the rupee. Brent was trading around $88 per barrel, while oil companies continued to generate dollar demand to meet import requirements.
Market participants said that dollar sales by the RBI through state-run banks, however, limited the rupee’s decline around 95.62 per dollar.
“The bond market was disappointed because the FCNR(B) swap window was closed early,” said a dealer at a private bank. “There shouldn’t be any more upward movement in yields from here,” the person added.
The early closure came as a surprise to the market, but market participants said the most likely reason was that the RBI had already achieved its mobilisation target. Total inflows through FCNR(B) deposits, overseas foreign currency borrowings (OFCBs) and external commercial borrowings (ECBs) stood at $56.8 billion as of August 13, including $52.3 billion through FCNR(B) deposits.
According to a report by the State Bank of India, FCNR(B) inflows could reach $60-65 billion, taking total inflows, including OFCBs and ECBs, to $80-85 billion. It said another $25-30 billion could potentially have flowed in during the remaining days of August had the window remained open. The report expects the stronger capital inflows to push India’s balance of payments into a surplus of around $50 billion in FY27, with the current account deficit at around 1 per cent of GDP.
The report also said the cost of the swap facility was unlikely to have been the reason for the early closure. Assuming a 3 per cent annual hedging cost, SBI Research estimates the five-year cumulative cost at around $10.5 billion. This would amount to only 1.45 per cent of India’s current foreign exchange reserves of around $700 billion, suggesting that the cost remains relatively small compared with the reserve buffer.
Meanwhile, the central bank conducted two variable rate reverse repo (VRRR) auctions as banking system liquidity remained in surplus. Banks bid a cumulative ₹1.95 trillion, against a notified amount of ₹3 trillion.
The net liquidity in the banking system was in a surplus of ₹3.63 trillion on Sunday, the latest data from the RBI showed.
Consequently, the overnight weighted average call rate (WACR) — which is the operating target of monetary policy — remained close to the Standing Deposit Facility (SDF) rate. The WACR settled at 5.18 per cent on Monday, compared with 5.23 per cent in the previous session.