RBI likely to deploy more tools as FCNR inflows strain liquidity management

Higher FCNR(B) deposit inflows are complicating the Reserve Bank of India's liquidity management, prompting economists to expect additional tools to absorb surplus funds from the banking system, which currently holds excess liquidity at a four-year high. Banks mopped up USD 127.23 billion through the concessional swap facility, with an additional USD 9 billion from separate ECB and OFCB windows open until December. System surplus reached Rs 9.71 lakh crore as of September 2, well above the RBI's preferred level of around Rs 2.7 lakh crore. Economists anticipate measures including variable rate reverse repo operations, incremental CRR hikes, and OMO sales, while noting natural drains from festive currency demand and forward maturities. Forex reserves hit a record USD 729.3 billion, and Barclays raised its FY27 balance-of-payments forecast to USD 100 billion.