RBI keeps repo at 5.25%, opens FAR bonds for inflows

What the RBI announced on June 5

The Reserve Bank of India (RBI) on June 5 announced a package of bond-market and foreign exchange measures aimed at drawing more dollars into India and easing foreign currency liquidity strains. The central bank kept the policy repo rate unchanged at 5.25% while signalling a stronger focus on external-sector pressures. The measures come as higher oil prices and investor outflows have weighed on the rupee, alongside broader weakness in emerging market currencies.

The package spans sovereign bond market access, non-resident investment rules, foreign exchange swap facilities, and support for banks raising foreign currency deposits. The RBI also moved to restore export-related timelines to improve the flow of foreign exchange from trade. The stated objective is to attract foreign capital, deepen domestic markets, and improve foreign exchange liquidity.

Why the focus shifted to dollar inflows

The RBI’s announcement explicitly links the steps to strains in foreign currency liquidity and pressure on the rupee. The backdrop includes a spike in oil prices tied to the Iran war and the ongoing West Asia conflict, according to a Reuters report cited in the provided text. At the same time, the central bank has had to manage the effects of global volatility and weakness across emerging market currencies.

While the repo rate was unchanged, the operational tools were directed at encouraging inflows through the bond market, external borrowings, and foreign currency deposits. The measures also reduce some frictions for foreign portfolio investors and non-resident individuals, which can matter when risk appetite is fragile.

FAR expansion for longer-tenor government securities

A central plank is the expansion of the Fully Accessible Route (FAR) for foreign investors in Indian government bonds. The RBI said all new issuances of 15-year, 30-year and 40-year government securities will now be included under FAR. This broadens the universe of specified securities available to foreign investors.

In addition, the RBI announced that investment limits on other government securities will be removed, further opening the sovereign bond market to foreign capital. The text also notes that limits relating to short-term investment, concentration, and individual securities for foreign portfolio investment under the General Route were removed. Taken together, these changes are meant to simplify access and reduce constraints that can limit large allocations.

Easier equity investment norms for non-residents

The package also expands investment opportunities for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). The RBI said investment limits for NRIs and OCIs will be increased for equity instruments traded on the stock market without registration with the Securities and Exchange Board of India (SEBI).

The same facility will be extended to all individual persons residing outside India, on par with NRIs and OCIs. This widens the pool of eligible overseas individuals and may help incremental equity inflows, particularly during periods when institutional risk-taking is subdued.

Concessional forex swap facility until September 30, 2026

The RBI announced a concessional foreign exchange swap facility that will remain available until September 30, 2026. The stated intent is to incentivise external commercial borrowings (ECBs), particularly by public sector undertakings (PSUs). The broader communication describes the swap facility as being offered to the market, aligning it with a near-term window to encourage dollar inflows.

By linking the concessional swaps to PSU external borrowings, the RBI is targeting a channel where financing decisions are often policy-sensitive and can be executed at scale. The time-bound nature of the facility suggests an effort to pull forward inflows while external conditions remain uncertain.

FCNR(B) deposits: full hedging cost support for banks

Another key measure is a special facility for banks, available until September 30, under which banks can raise three-to-five-year FCNR(B) deposits. Under this facility, authorised dealer banks will receive support related to the full hedging cost for raising fresh FCNR(B) deposits.

This mechanism is designed to make foreign currency deposit mobilisation more attractive by reducing the cost burden of hedging. The RBI’s communication also references reviving tools that can mobilise dollar inflows and strengthen the balance of payments when currency pressure rises.

Export proceeds timeline restored to nine months

The RBI proposed restoring the time period for realisation of export proceeds to nine months. The text notes the central bank had tightened export realisation timelines earlier to accelerate foreign exchange inflows from trade, and the current step restores the allowed period.

This change affects how quickly exporters must bring export earnings back into the system. While it is not a direct inflow incentive like swaps or bond access, it is part of the broader external-sector toolkit that influences near-term foreign exchange availability.

What Reuters said the RBI is still studying

Separate from the announced steps, a Reuters report cited in the text said the RBI is studying ways to mobilise dollar inflows to bolster foreign exchange buffers. Among the options under consideration is reviving a mechanism last used in 2013 to draw in dollar deposits from non-resident Indians.

The report also said another option being discussed is removing a 5% withholding tax charged to foreign investors in Indian government bonds, which could encourage inflows. The text states no final decision has been taken on either measure and any move would be made in consultation with the government.

Notably, the Reuters report also mentions that the 2013 NRI dollar deposit scheme brought in around $16 billion at a time when US interest rates were near zero.

Earlier liquidity support steps referenced in the text

The provided material also refers to an earlier RBI liquidity support package announced on January 23, 2026, after the rupee fell to a historic low against the US dollar. That package totalled ₹75,000 crore and included open market operation (OMO) purchases worth ₹50,000 crore in two equal tranches scheduled for February 5 and February 12.

It also included a 90-day Variable Rate Repo (VRR) operation for ₹25,000 crore on January 30, and mentioned a three-year dollar-rupee swap auction scheduled for February 4. Separately, the text notes the RBI has also announced measures to inject close to ₹300,000 crore through open market operations and a dollar-rupee buy-sell swap, although no date is provided for that reference.

Key measures at a glance

Market impact and what to watch next

The measures are designed to influence the balance of payments through multiple channels: portfolio inflows into government securities, overseas individual participation in equities, and debt inflows via ECBs and FCNR(B) deposits. By broadening bond eligibility under FAR and removing several FPI constraints under the General Route, the RBI is reducing operational barriers for foreign investors who track benchmark-eligible or liquid segments of the curve.

The time-bound swap and hedging-cost facilities create a clear incentive to execute external borrowings and deposit mobilisation within the window ending September 30, 2026 or September 30, depending on the facility. Investors will also watch whether the RBI and government take forward the options reported by Reuters, including a potential revival of the 2013-style NRI deposit mechanism or changes to the 5% withholding tax on overseas bond investors.

Conclusion

The RBI’s June 5 package keeps the policy rate steady at 5.25% but uses targeted bond-market, swap, and deposit measures to pull in dollar liquidity and support the rupee amid oil-driven external pressure. The next key dates are the September 30 deadlines for the concessional swap and related facilities, alongside any government consultation outcomes on the additional options still under study.