The RBI plans to close the FCNR (B) deposit scheme a month earlier on 31 August, instead of end-Sept, while the window for the concessionary external borrowing facility will remain open till end-Dec26. Latest data released showed that by mid-Aug, banks had raised a cumulative $56.8bn via the special swap schemes, 92% of which i.e. $52.3bn was via the deposit program. The decision to bring forward the last date for the deposit facility was driven by “encouraging response” according to the authorities. With the $/ rupee stabilising in the 95-handle, portfolio flows gradually returning, and the various funding windows likely having raised around c$70-$75bn in aggregate, equivalent to ~10-12% of prevailing foreign exchange reserves, the urgency for policymakers to maintain extraordinary support measures has diminished significantly. The scale of hedging cost (borne by the central bank) was unlikely to have been a binding factor, with funds raised to-date deemed to be sufficient to prop the BOP back to a position of strength.
We don’t expect the INR to unilaterally lose ground on an early withdrawal of the deposit scheme. That said, a more interventionist policy response may once again be warranted if external conditions deteriorate, particularly in the event of escalating geopolitical tensions or a higher-for-longer US rates environment. It is notable that the central bank’s intervention presence had already been strong this year, which apart from spot FX was also visible in the sharp increase of the net forward sales book to $106bn as of May26 vs less than -$20bn back in 2013 when a similar scheme was last announced, pointing to incipient rollover demand in the short-term to year ahead. Separately, onshore banks have reportedly brought forward their fund-raising plans, with nearly $6bn raised to-date in 2026, having breached this level at only three occasions within the last decade and a half according to the wires.
Meanwhile, 2Q26 (1QFY27) current account proved to be relatively resilient despite the energy price shock. 1QFY registered a small -$3.1bn deficit, narrowing from a seasonal $7bn surplus in 4QFY26. A wider goods trade deficit was offset by a modest pickup in the services balance and ~34% yoy jump in frontloaded remittances. Factoring in a likely wide import bill in rest of the year, we maintain our full year CAD forecast at -1.1% of GDP, with an improvement in second half of FY27. BOP in the quarter slipped into a small deficit at -$8.1bn with a pick-up in net FDI counterbalanced by -$9.6bn drop in FPI flows. Banking capital flows are set to improve on the back of the swap windows, pushing the full year BOP to upwards of $40bn in our view vs a shortfall of $23bn in FY26. Overall, the second fortnight of August is likely to witness frontloading in flows and resultant impact on the domestic markets (liquidity and lower yields – especially belly of the curve), before normalising Sept onwards. 
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.