The early closure of the Reserve Bank of India’s FCNR(B) deposits swap window and the oil prices rising close to $90 per barrel has sent the rupee diving to a 17-day low on Monday.

The market reacted to a downward bias of the rupee as it depreciated 0.2% and plunged to close Monday at 95.61 per dollar. A sharper fall was arrested by the central bank’s market interventions.

The shortening of the swap window also impacted yields on the government securities market. The 10-year government bond rose by 5 basis points to end at 6.79% while the 5-year paper increased by 8 basis points to close at 6.41%.

Forex traders said the confused signal wasn’t healthy for the rupee as importers took forward covers, with the RBI deciding to prematurely shut the FCNR(B) swap window by 31 August rather than end-September as it had announced earlier. Nine days prior to this, RBI Governor Sanjay Malhotra had said the special scheme would run its course in response to a media query about the possibility of a premature closure due to the strong foreign currency non-resident (Bank), or FCNR(B), deposit inflows.

“Traders are looking forward to positive signals from the RBI. The premature closure of the RBI’s special swap scheme hasn’t helped. Signals should have been sent earlier that the scheme’s duration would depend on the FCNR(B) deposit inflows reaching a particular target,” said a forex dealer.

The rupee’s fall was despite the dollar index being at its weakest level this month. Forex traders said the Indian currency weakened as crude oil touched almost $90 a barrel, and the RBI curtailing the FCNR(B) deposits’ special swap period by a month also didn’t go down well. 

While the rupee fared poorly with a 0.18% dip against the dollar, Asian currencies gained. The Malaysian ringgit appreciated 0.62%, followed by Taiwanese dollar which gained by 0.61%. The other regional peers like the Chinese Renminbi also gained.

Gaura Sengupta, chief economist at IDFC First Bank, believes the rupee suffered from a knee-jerk reaction due to the premature closure of the special swap window. “The rupee had depreciated by 11% in FY26 when we had a balance of payments deficit of $24 billion. This time around, we have BoP surplus of $40 billion so we believe that the RBI will be able to contain the pressures on the rupee,” she said.

While the FCNR(B) deposit mobilisation under the concessional swap facility has advanced to 31 August from 30 September, the external commercial borrowing (ECB) and overseas foreign currency borrowing (OFCB) windows remain open until 31 December.

The FCNR(B) deposit inflows could attract around $80 billion by the end of this month, according to a research report by the State Bank of India. 

"The decision to close it early comes as a surprise to market participants even as in the last media interaction the RBI Governor had clearly indicated that there was no intention to close the scheme early. While there may be valid reasons to justify an early closure, the most likely reason could be that the target for FCNR(B) mobilisation has already been achieved with inflows at $57 billion. And another $25-30 bn could easily flow in the remaining days of August," it said in a note.

The rupee had dived to a record low of 96.96 against the dollar on 20 May but FCNR(B) inflows and market interventions by the RBI had brought it up to the 95 levels. “For the near term, we expect USD/INR to hold a 95–96 range,” said Anindya Banerjee, Senior VP and Head of Commodity Research at Kotak Securities.