RBI frees rates on NRE deposits to attract dollar inflows

KOLKATA: The RBI has unleashed new ammunition to support the rupee from depreciating. On Friday, it deregulated interest rates on NRI deposits to attract more dollar flow into the country.

It has decided to deregulate interest rates on non-resident (external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts with immediate effect. This will attract more dollar as banks are likely to increase the interest rates.

In case of NRI deposits, the dollar or any other foreign currency gets credited to a nostro account of a local bank which, in turn, deposits money in local currency.

This comes within a day of taking a slew of administrative measures that helped the rupee to close higher 52.70 Friday from 53.65 the previous day, giving indication that the central bank is using all its ammunition arrest the rupee from sliding further.

The rupee had depreciated by about 17% against the US dollar over its level on August 5, 2011, the day on which the US debt downgrade happened. RBI said the latest measure will provide greater flexibility to banks in mobilising non-resident deposits.

Banks have been freed to determine interest rates on both savings deposits and term deposits of maturity of one year and above under NRE and savings deposits under NRO accounts.

Source: EconomicTimes