Barclays now judges that the Reserve Bank of India (RBI) has eased the rupee's tail-risk profile through recent policy steps, creating the prospect that incoming capital will provide support for the currency. The bank highlights a set of potential inflows that could shift the balance of payments from deficit to surplus over the coming months.
Specifically, Barclays identifies upside risks to FCNR (Foreign Currency Non-Resident) deposits in the range of $35 billion to $50 billion, with the precise outcome contingent on how much leverage comes into play. To this, the bank adds an estimate of $15 billion to $20 billion from ECB inflows and FAR bond inflows. Combined, these components could result in aggregate inflows comfortably exceeding $70 billion.
According to Barclays, such a volume of incoming capital would more than plug the balance of payments shortfall and could generate a surplus, which in turn would produce more balanced market conditions for the rupee. The bank expects this shift to translate into a slower pace of rupee depreciation and a more measured, controlled adjustment trajectory with fewer downside tail risks.
Barclays cautions, however, that it does not expect any near-term appreciation of the rupee to be sustained. The bank anticipates that the RBI will continue its policy of accumulating foreign exchange reserves and will absorb the bulk of incoming flows, tempering persistent volatility in the currency.
The bank notes that foreign equity outflows have exceeded $30 billion year-to-date. Despite that, Barclays now views the other identified inflows as likely to more than offset these equity withdrawals. The ultimate outcome will depend on whether outflows from foreign equity holders undergo a sustained reversal.
This assessment frames a scenario in which large, coordinated inflows reduce external vulnerability, while the central bank remains an active participant in markets to manage reserve levels and overall stability.
Context limitations - The analysis above reflects Barclays' estimated ranges and outlook as presented. Where the article references ranges and expectations, no additional or alternative figures have been introduced.