FCNR inflows push short-term borrowing costs

FCNR inflows push short-term borrowing costs

SEBI RA – Shubh Consultancy – Sunil Kotak – INH000015826 Interest rates on three-month certificates of deposit (CDs) have fallen by more than 100 basis points from their peak this year as a surge in FCNR (B) inflows has pushed liquidity higher in the banking system, according to ICICI Bank Research. The report said the impact of the foreign currency inflows is being felt more strongly in short-term money market rates, which have moved well below the policy repo rate. Rates on six-month and one-year CDs have also declined by around 100 basis points and 90 basis points, respectively, from their peaks earlier this year. The sharp decline in short-term borrowing costs comes after gross FCNR (B) inflows reached around $127 billion, significantly changing the liquidity outlook for the rest of the financial year, ICICI Bank said. Before the FCNR (B) scheme, average system liquidity stood at around INR 1.6 lakh crore, or 0.6 per cent of net demand and time liabilities (NDTL), in May 2026. This rose to ₹3.7 lakh crore, or 1.3 per cent of NDTL, in August, while current liquidity has reached around ₹10.5 lakh crore, or 3.9 per cent of NDTL. The bank expects liquidity to remain elevated in the coming months, with the banking system surplus likely to be around 2.5 per cent of NDTL by March, even after accounting for seasonal demand for currency and reserve balances. All this is for information This is not a buy/sell recommendation. Thank you, Technofunda24