New Delhi | Mumbai: The Centre does not expect the Reserve Bank of India (RBI) to face material costs from the unprecedented $127-billion inflows through forex inflow schemes underpinned by a swap facility, people aware of the details of the dedicated plans that closed August 31 told ET.
This assessment comes amid concerns the foreign currency non-resident-bank (FCNR-B) and other forex inflow programmes may have a high cost for the central bank, stemming largely from hedging and liquidity management expenses.
The RBI is, however, expected to earn good returns when these record inflows are deployed in US treasuries that have seen a sharp rise in interest rates, which would offset anticipated costs for the central bank, said the people cited above, setting aside concerns by a section of economists that hedging costs could eventually crimp future central bank surplus transfers to the government.
The investment yield on 52-week US Treasury bills was 4.14% a year as on August 31, 2026, they said. Robust flows are also expected to reduce intervention costs for the central bank to manage currency volatility, as the record proceeds are expected to calm the markets.
These flows carry two costs for the central bank: the cost of absorbing excess liquidity from dollar inflows (sterilisation cost), and the cost of exchange rate risk.
Economists believe the first task is an immediate priority, while in the medium term, the RBI will have to create a buffer for the dollar debt that must be repaid within a fixed period. The 3% hedging costs, some economists estimate, could cost the RBI up to Rs 36,000 crore.
"The swap costs that RBI will bear on the dollar inflows could come to about 3% of approximately the Rs 12 lakh crore collected - or about Rs 36,000 crore - that will be reduced from the RBI's income in the next three to five years," said Madan Sabnavis, chief economist, Bank of Baroda. "The contingent risk buffer (CRB) of the RBI will also increase as the balance sheet of the central bank increases, which also means that we could see a lower transfer of surpluses to the government."
The CRB is a reserve pool of funds set aside from the central bank's annual profits to cover potential monetary, financial stability, and operational risks. In 2025-26, the CRB threshold was 6.5% of the total balance sheet size of the RBI.
However, some economists believe that just like in 2013, when India had tapped into the diaspora to shore up its currency through the so-called taper tantrum, the key for the RBI to walk away without much stress on the rupee would be the return of capital inflows.
The rupee had plunged to a then record low of Rs 68.85 per dollar in 2013, but strong portfolio inflows ensured the currency recovered close to Rs 61 per dollar in 2014. Although the rupee had weakened to Rs 67 per dollar by the time the three-year swap matured in 2016, a stronger forex kitty ensured the RBI was in a better position to pay off the debts.
The central bank, however, may face rupee losses if the Indian currency depreciates more than expected when these deposits mature.
Policymakers, while accepting the risk, believe there are chances the rupee may appreciate as it happened in 2013 following a similar scheme, and the central bank may even gain.
Any rupee loss to RBI may be partly or fully offset, or even more than offset, by the returns earned from deploying the foreign currency assets in US treasuries, said one of the people cited above.
Separately, the excess liquidity due to these flows is seen at around Rs 5-7 lakh crore over the next six months. Policymakers believe the economy can easily absorb this liquidity given high growth, and the central bank may not need to absorb it significantly.
