RBI Faces $12.7 Billion Cost for Rupee Stabilization Program

The Reserve Bank of India faces projected costs between $10.6 billion and $12.7 billion resulting from a special deposit program launched in June to stabilize the rupee after the currency reached record lows. The program attracted $136.38 billion through Foreign Currency Non-Resident plans and external commercial borrowings, significantly surpassing the central bank's initial estimate of $80 billion.

These expenses stem from a swap facility provided by the central bank to protect commercial banks from currency risk and the operational need to absorb excess rupees within the banking system. Financial analysts at Emkay Global Financial Services estimated the potential cost as high as 1.2 trillion rupees.

Economists warn that these costs could reduce the dividend the central bank pays to the Indian government, potentially impacting national budget targets. Conversely, some suggest the central bank can offset these expenses by investing the accumulated funds into high-yield assets such as US Treasuries.