The Reserve Bank of India (RBI) has rolled out a new foreign exchange swap facility at a discounted rate of 1.5%, seeking to encourage overseas investors to bring more capital into the country and strengthen India’s external financial position.
The scheme allows the RBI to absorb currency risk at a lower cost than prevailing market rates, making Indian investments more attractive for foreign investors. By reducing the expense of hedging exchange-rate fluctuations, the central bank hopes to boost participation in domestic debt and financial markets.
Market experts estimate that the initiative could help attract as much as $50 billion in additional foreign inflows over the medium term. The measure comes as policymakers look to capitalise on India’s strong economic growth outlook and improving macroeconomic fundamentals.
Foreign investors often hedge their exposure to protect against currency volatility, but high hedging costs can erode returns. The RBI’s new swap window addresses this challenge by offering a significantly cheaper route for managing forex risk, thereby improving the risk-reward equation for global investors.
The announcement follows a series of steps by the RBI to improve market efficiency and attract long-term foreign investment. The central bank has been balancing growth support with financial stability while ensuring that India’s external sector remains resilient amid global uncertainties.
Financial markets reacted positively to the development. Bond yields eased on expectations of stronger demand from foreign investors, while sentiment towards Indian assets improved.
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