RBI lowers interest rate ceiling on NRI deposits

Monday, 19 April 2004, 19:30 IST
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NEW DELHI: The Reserve Bank of India (RBI), India's central bank, Saturday lowered the interest ceiling on deposits by non-resident Indians. The central bank said interest rates on non-resident (external) rupee (NRE) deposits for one to three years should not exceed US dollar Libor/Swap rates for corresponding maturity. "The interest rate as determined above for three year deposits would also be applicable in case the maturity period exceeds three years," said a RBI statement. "The changes in interest rates will also be applicable to NRE deposits renewed after their present maturity period." Analysts say the RBI move is aimed at stemming the large-scale flow of foreign funds into the country, which has resulted in a rise of nearly four percent in the value of the Indian rupee against the US dollar. To provide consistency in the interest rates offered to non-resident Indians, the interest rates on NRE deposits were linked to US dollar Libor/Swap rates from July 17, 2003. The interest rates on these deposits were reduced from 250 basis points above Libor/Swap rates of corresponding maturity to 100 basis points on September 15, 2003 and later to 25 basis points on October 18, 2003. The central bank has also decided to link the interest rate on NRE savings deposits also to Libor/Swap rates with effect from close of business in India on Saturday with a view to aligning the interest rates on various categories of NRE deposits. Interest rates on NRE deposits are currently linked to domestic savings rates.
Source: IANS