RBI raises interest rates to attract foreign currency deposits

To attract inflows in view of falling rupee, the Reserve Bank today raised the interest rate ceiling on NRI deposits in foreign currencies by up to 3%.

Following RBI's announcements, the Indian banks will be able to offer higher interest rates on NRI deposits in foreign currency.

In another notification, RBI deregulated interest rates on export finance, a development that would help exporters to freely raise money in foreign currency without any limit on interest ceilings.

The RBI's decisions are aimed at arresting the declining value of rupee which closed at Rs 53.47 against a dollar today.

With regard to foreign currency deposits, the RBI said, "interest rate ceiling on Foreign Currency Non-Resident FCNR (B) deposits of banks has been raised from 125 basis points (bps) (1.25%) above the corresponding LIBOR or Swap rates to 200 bps for maturity period of 1 year to less than 3 years, and to 300 bps for maturity period of 3 to 5 years."

For one-year, LIBOR (London Inter-Bank Offered Rate) stood at 1.0472%. LIBOR is world's most widely used benchmark for short-term interest rates.

In another notification, RBI said, "it has been decided to allow banks to determine their interest rates on export credit in foreign currency with effect from May 5, 2012."

Besides these measures, RBI is also reported to have intervened in the forex market by selling dollar. PTI DP CS KSR NS