RBI may have to bear forex risk to boost foreign money inflows
GS3Economy · S&T · Environment · Security· Monetary policy, RBI & banking· Prelims + Mains·
Why in news
Economists predict a $68 billion balance of payment (BOP) deficit in FY27, potentially forcing the RBI to consider a forex deposit scheme to manage rupee depreciation.
Background
Nomura's Sonal Varma predicts a $68 billion BOP deficit for FY27. The RBI is exploring options like reviving a 2013-style forex deposit program or eliminating withholding tax on foreign government bond investors.
Facts for Prelims
- FactPredicted BOP deficit for FY27: $68 billion
- BodyReserve Bank of India (RBI) is the body exploring forex deposit schemes
- FactRBI is considering eliminating withholding tax on foreign government bond investors
For Mains
Q. Analyze the challenges of managing a large balance of payment deficit and the role of the RBI in stabilizing the currency through forex deposit schemes.
Dimensions to cover in your answer
- Monetary policy trade-off: Balancing interest rate stability with the need to attract foreign capital
- Structural dependency: Vulnerability to overseas fund outflows vs. organic growth in remittances and NRI deposits
Keywords: Balance of Payments · Forex Deposit Scheme · Currency Depreciation · Capital Outflow · Monetary Policy
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