RBI Governor Sanjay Malhotra stated that the $36.7 billion inflow from the special FCNR(B) deposit scheme will provide only a short-term liquidity boost. The central bank expects the excess funds to be absorbed by normal economic activity as the scheme continues until September 30, 2026. Investors should note that this temporary surplus does not change the broader liquidity management strategy, which remains focused on inflation and stable growth.
Reserve Bank of India Governor Sanjay Malhotra clarified on Wednesday that the surge in market liquidity resulting from the special Foreign Currency Non-Resident (Bank) or FCNR(B) deposit scheme will be temporary. The scheme, which was introduced in June 2026, has attracted approximately $36.7 billion in inflows as of July 31, 2026. This influx has significantly helped in bolstering India’s foreign exchange reserves and providing support to the rupee.
Governor Malhotra explained that while the inflows have created a surplus of funds in the banking system, this is expected to be a short-lived phase. The central bank anticipates that normal economic factors—such as increased demand for currency in circulation and higher reserve requirements as bank deposits grow—will naturally absorb this excess liquidity over the coming quarters. The governor confirmed that the scheme will continue to operate as planned until its scheduled closure date on September 30, 2026, with no current plans to discontinue it prematurely.
Liquidity and Monetary Policy Context
For investors monitoring the broader financial landscape, it is helpful to view this liquidity injection alongside the RBI’s recent policy decisions. In its August 2026 meeting, the Monetary Policy Committee maintained the repo rate at 5.25% while continuing to hold a neutral stance. The RBI’s approach to managing the dollars collected under the FCNR(B) scheme follows a standard framework that prioritizes security, liquidity, and returns, overseen by a high-level committee.
While the current deposit inflows have eased liquidity conditions, the central bank continues to keep a close watch on several external and domestic risks. Governor Malhotra highlighted that inflation remains a key area of focus, with concerns stemming from rising food and fuel prices. Additionally, the broader economy faces uncertainty from global factors, including geopolitical tensions in West Asia and fluctuations in international crude oil prices. These risks, along with the potential for currency volatility, mean that the RBI will likely continue its proactive stance on managing systemic liquidity as the temporary surplus is gradually absorbed by the economy.
Investors may monitor the progress of these inflows leading up to the September deadline and watch for any further comments from the RBI regarding liquidity management in upcoming policy reviews.