Carefully locked in.

"Amid significant depreciation in the domestic currency, the Reserve Bank of India (RBI) said it will absorb hedging cost for foreign currency deposits mobilized by Indian banks till 30 September 2026." "RBI had last introduced and FCNR (foreign currency non-resident) deposit scheme during the 'taper tantrum' of 2013," and "The scheme had then brought in over $20 billion of foreign flows, giving non-resident Indians (NRI) attractive tax-free returns." Mint. In August 2013, "The Indian rupee has dropped by nearly 4% to a new low of 68.7 to the US dollar," as "The rupee has lost 20% of its value this year." This was in reaction to then US Federal Reserve chair Ben Bernanke saying that the Fed was going to start to "taper" its bond buying program. BBC. "RBI has opened the dollar tap by taking on the currency risk itself to draw in overseas money," as "The RBI will not charge any premium for swapping dollars raised through FCNR(B) deposits, effectively absorbing the entire forex risk and allowing banks to offer higher returns to NRIs." NRIs can use this arbitrage opportunity to borrow at cheaper rates abroad and pocket the difference." TOI. The dollars that banks borrow "can be parked with RBI at the spot exchange rate; after 3 years (or 5), when the deposits have to be returned, banks can take those dollars back by paying the same amount of rupees they got when they parked the funds with the RBI." The RBI has capped the interest on these dollar loans at a maximum of 7.15%. This is a masterstroke as this will increase rupee liquidity in banks, while increasing RBI's forex reserves, by $20-$50 billion, wrote Madan Sabnavis. In its latest meeting the Monetary Policy Committee of the RBI left its interest unchanged at 5.25%, while projecting GDP growth at 6.6% and consumer price index (CPI) inflation at 5.1%. newsonair.gov.in. Interest rate at 5.25% is "too small a premium when the Fed's target range is 3.5% to 3.75%, and expectations are growing that its next move will be a hike. It's very clear what the authorities are trying to do here - stabilize the currency, keep domestic rates low and avoid capital controls. Juggling with the three objectives requires putting taxpayers on the hook, which is what an expected 3% concession on dollar borrowers' hedging cost effectively means," wrote Andy Mukherjee. It would be better for the RBI to raise interest rates. The GDP has grown by 7.8% in Q4 FY26 and by 7.7% in 2025-26. The current account was in a surplus of 0.7% of GDP in Q4 of FY26 and remittances from abroad grew 25%, wrote Soumya Kanti Ghosh, member of the Economic Advisory Council to the Prime Minister. The RBI "may have to manage inflation expectations, currency stability and liquidity conditions simultaneously without relying on a single policy instrument. It must not increase interest rate or reduce liquidity in the markets, but sell dollars to support the rupee and wait for inflation to come down by itself, advised Mr Ghosh. The MPC meeting predicted CPI inflation at 4.2% in Q1 FY27, 5.1% in Q2, 5.9% in Q3 and 5.4% in Q4 of FY27. The Fixed Income. Which means "the real effective rate of interest falling close to zero by the second quarter (if one considers the repo rate of 5.25% and second quarter inflation of 5.1%) and a negative 0.65% if one takes the third quarter inflation projection of 5.9%." The best course of action would have been to hike interest rates as "that would discourage consumption, and encourage foreign debt flows and, most importantly, dampen inflationary pressure." The RBI is trying to "fill a leaky bucket. A futile exercise. And one that may cost us dear," wrote Mythili Bhusnurmath. "Interest rates across the world are rising again. ECB increased its benchmark rate by 25 basis points (bps) for the first time in three years, after the central banks of Indonesia, the Philippines and Sri Lanka hiked interest rates. Mint. Those central banks probably think about citizens, while Indians will lose out by earning interest lower than inflation on their savings, as well as transfer their taxes to NRIs. These FCNR(B) deposits will be locked in for 3-5 years, which will be after the next general election  in May 2029 (wikipedia). That's all that matters. Don't ask. Just vote.