India ends dollar-raising drive early as foreign inflows ease balance of payments concerns

Monday 17 August 2026 - 09:45

By: Sahili Aya

India ends dollar-raising drive early as foreign inflows ease balance of payments concerns

India’s central bank has brought an early end to a major foreign currency fundraising programme after stronger-than-expected inflows improved the country’s external position, while analysts warned that extending the initiative could have created new policy challenges.

The Reserve Bank of India (RBI) shortened the timeline of its zero-cost foreign exchange swap facility after banks attracted more than $50 billion in deposits from non-resident Indians within roughly two months, according to analysts familiar with the policy move.

Strong inflows strengthen foreign currency reserves

The dollar-raising campaign was launched to increase foreign currency availability and support India’s external financial position. The measures generated significant inflows, helping push the country’s foreign exchange reserves above the $700 billion mark.

However, analysts said the success of the programme reduced the need for additional fundraising and created potential complications if foreign currency inflows continued at the same pace.

The RBI’s decision to close the swap facility earlier than initially planned reflects a balancing act between maintaining adequate reserves and avoiding excessive pressure on domestic financial conditions.

Concerns over liquidity and future liabilities

While attracting foreign currency deposits provides short-term support, analysts noted that additional inflows could increase external liabilities and complicate the management of rupee liquidity.

Foreign currency swaps can influence domestic money supply conditions, requiring careful management by the central bank to maintain financial stability.

According to analysts, policymakers also had to consider the longer-term cost implications of relying heavily on such instruments to attract overseas funds.

Positive outlook for India’s external accounts

The move comes as economists assess India’s broader balance of payments outlook. Citi analysts estimate that India could record a surplus of around $53 billion for the 2027 fiscal year, suggesting continued strength in the country’s external finances.

The improvement has given authorities greater flexibility in managing currency policy while reducing the urgency for additional foreign exchange measures.

RBI navigates economic policy trade-offs

The decision highlights the challenges faced by central banks in managing large international capital flows. While foreign inflows can strengthen reserves and support confidence in the economy, they can also create pressure on monetary policy and liquidity management.