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The Hindu Business Line

RBI’s FCNR(B) swap-fuelled dollar inflows seen strengthening rupee and weighing on India gold prices

AI Market Summary
India's RBI FCNR(B) swap scheme, which absorbs hedging costs and has lifted bank deposit rates, is driving expectations of large USD inflows and a firmer INR. Rupee appreciation mechanically lowers INR-denominated gold and has coincided with a sharp domestic correction. If inflows scale toward projected levels, FX-driven pressure could persist for local gold demand and imports even if USD gold is stable.
Impact level
● Medium
Affected assets
NCCOGOLD2USD/USDT-0.24%
AI Insight · NCCOGOLD2USD/USDTAI Insight
▼ Bearish
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The Reserve Bank of India has introduced a USDINR forex swap facility for fresh FCNR(B) dollar deposits and will absorb the full hedging cost, prompting banks to lift deposit rates to about 6-7%. NRIs booked nearly $7 billion of FCNR(B) deposits in June, and overall inflows are projected to reach $50 billion by October. As the rupee has firmed from around ₹97 to ₹94.6 against the dollar, domestic gold prices have fallen 6% in a month and are down 14% from their March record high. The expected inflows could keep rupee-denominated gold prices under pressure even if global bullion prices stay stable.
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