RBI keeps repo at 5.25%, adds dollar inflow steps in 2026

What the RBI announced and why it matters

The Reserve Bank of India (RBI) kept its policy rate unchanged on June 5 while unveiling steps designed to pull more dollars into the country. The measures come as the rupee faces pressure from costly oil and foreign outflows, according to reports that cited rising crude prices and heavy equity outflows. Policymakers framed the decision as a balance between protecting growth and stabilising the currency. The repo rate was kept unchanged at 5.25%. Alongside the monetary decision, the RBI and the government highlighted steps meant to improve foreign exchange availability and broaden overseas participation in India’s debt markets. Governor Sanjay Malhotra said the central bank would introduce temporary and structural measures to improve foreign exchange availability and make Indian debt markets more accessible to overseas investors. The combined package leans on tax changes, bond market access, forex swaps, external borrowing incentives, and diaspora deposits.

Repo held steady as rupee support shifts to targeted tools

By holding rates, the RBI signalled concern about adding fresh pressure on growth. The same announcement cycle included a parallel set of currency support measures, indicating the focus moved to liquidity and market access rather than higher interest rates. The policy mix reflects a period where external conditions have tightened and the cost of importing energy has increased. Officials and reports linked the package to foreign currency liquidity strains as oil prices rise and investor outflows weigh on the rupee. Reuters also reported that rising crude prices and record outflows from Indian equities pushed the rupee to record lows. Another widely circulated commentary referenced a 7% fall in the rupee against the dollar, underlining the urgency around inflows. The RBI’s approach relies on making it easier and cheaper for foreign and overseas Indian capital to come in through bonds, swaps, and deposits. Several measures have defined end dates, suggesting the RBI is trying to bridge a near-term period of stress.

Tax relief for foreign investors in government bonds

A key support lever is tax policy for foreign investors in government securities. The government said it will scrap capital gains tax for foreign investors and also removed the 20% tax on interest earned from such investments, as reported alongside the RBI announcement. The exemption will take effect from April 1, 2026. The article text also notes that foreign investors are subject to a 12.5% long-term capital gains tax on listed shares and bonds held for more than 12 months. Local media reports cited Cabinet approval and an ordinance route to amend the Income Tax Act, with the change coming into effect after the President’s assent. The stated objective, according to sources cited in local reporting, is to attract fresh global capital into Indian debt markets and support the rupee amid high crude prices linked to the Iran conflict. Separate reporting also noted that a concessional 5% withholding tax on bond interest that was available earlier was withdrawn in 2023.

Fully Accessible Route expanded for long-tenor G-Secs

The RBI’s biggest market-structure change was centred on government bonds. It said all new issuances of 15-year, 30-year and 40-year government securities will now be included under the Fully Accessible Route (FAR). FAR allows foreign investors to invest in eligible government securities without being subject to investment limits. The article text adds that securities under the FAR category are already included in three major global bond indexes. Reuters reported that the RBI also widened the set of government bonds with no foreign investment restrictions. Separately, it was also reported that investment limits on other government securities will be removed. Together, these steps are intended to make sovereign bonds more attractive and easier to buy at scale for global investors. The measures are positioned as a way to bring long-term overseas funds into India’s debt market.

Wider access for NRIs, OCIs and overseas individuals

The inflow push is not limited to institutional foreign investors. The RBI said it will expand investment opportunities for Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs). It announced that investment limits for NRIs and OCIs will be increased. The facility will also be extended to all individual persons residing outside India. This element links the rupee support package to diaspora and overseas household savings, not just global funds. The RBI’s narrative frames the change as part of making markets more accessible to a broader overseas investor set. While the details of new limits were not specified in the provided text, the direction is clearly toward higher headroom and wider eligibility. This complements the FCNR(B) deposit incentives aimed at the same segment.

Concessional forex swaps until September 30

The RBI also announced a concessional foreign exchange swap facility that will remain available until September 30. Reuters described it as concessional forex swaps offered until September 30 to encourage state-owned firms to tap dollar borrowings. The facility is designed to reduce the cost of converting dollars into rupees, encouraging banks and market participants to bring foreign currency into India. The text characterises the facility as running for about four months till September 30. By lowering swap costs, the central bank is trying to address a near-term foreign currency liquidity squeeze without changing the policy rate. The timeline is explicit, which helps markets evaluate how long the support will remain in place. It also signals that the measure is meant as a bridge, not a permanent change.

ECB and PSU borrowing incentives, plus hedging support

Another element of the package aims to encourage external commercial borrowings (ECBs), particularly by public sector undertakings (PSUs). The RBI said it will incentivise such borrowing, with the goal of bringing additional foreign currency into the country when external financing conditions are more challenging. Hedging costs are a recurring constraint in offshore borrowing decisions. The initial summary also stated that the RBI would subsidise hedging costs for offshore borrowing. In addition, the RBI said it will compensate banks for hedging costs on 3-year and 5-year foreign currency non-resident deposits aimed at the Indian diaspora. This mix is designed to make the net economics of bringing dollars to India more favourable. The official positioning in the text is straightforward: improve foreign exchange availability and ease pressure on the rupee.

FCNR(B) deposit window for three-to-five-year tenors

The RBI’s deposit-side step focused on Foreign Currency Non-Resident Bank, or FCNR(B), deposits. The central bank said banks will be allowed a special facility until September 30 under which they can raise three-to-five-year FCNR(B) deposits. Under this facility, banks receive support related to the full hedging cost. Reuters described a similar facility for bearing the full hedging cost till September 30 to banks for raising three to five year FCNR(B) deposits. This measure directly targets dollar inflows through the banking system, using diaspora deposits as a relatively stable source of foreign currency. The explicit maturity range is important because it nudges inflows toward longer tenors rather than short-term hot money. Like the swap window, the end date makes it a time-bound incentive.

Export proceeds timeline restored to nine months

In a separate operational change, the RBI said it will restore the time period for realisation of export proceeds to nine months. This gives exporters more time to bring export earnings back into the country. The move is framed as helping businesses manage cash flows more efficiently while maintaining foreign exchange inflows. While it does not directly create new dollars, it can influence the timing of inflows into the domestic system. In periods of currency stress, such timing adjustments can reduce near-term pressure. The policy also fits the broader theme of improving foreign exchange availability. The RBI’s combined measures, therefore, cover both supply-side inflows and administrative levers that affect how quickly dollars enter the market.

Key measures at a glance

Market impact and why investors will track this closely

The measures are designed to directly influence the channels that bring dollars into India, particularly through sovereign bonds, swaps, and banking deposits. Removing or reducing tax frictions on G-Secs can increase the post-tax return for foreign investors, potentially improving demand at auctions and in the secondary market. Including new long-tenor bonds under FAR and removing limits on other securities lowers operational barriers for global funds that need scale. Time-bound swap and hedging support lowers the cost of bringing dollars in during a period of stress, especially for PSUs and banks raising FCNR(B) deposits. The explicit reference to record equity outflows and higher oil costs provides the macro backdrop for why the RBI chose these tools. For domestic investors, the focus is on whether these steps ease currency pressure without sacrificing growth through rate hikes. The next milestones to watch are the September 30 deadlines for swap and hedging facilities and the April 1, 2026 effective date for the tax exemption.

Conclusion

The RBI kept the repo rate at 5.25% but paired the decision with a broad package to attract dollar inflows and support the rupee. The steps include easier foreign access to government bonds, a swap window until September 30, and incentives for FCNR(B) deposits and offshore borrowing, alongside tax relief on foreign investment in G-Secs effective April 1, 2026. In the near term, markets will track uptake of the swap and deposit facilities and any follow-through on the ordinance route for tax changes. The key calendar markers remain September 30 for the RBI’s temporary facilities and the implementation timeline for the government’s tax measures after required approvals.