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RBI tightens cap on NRE deposit rates

By Our Special Correspondent

MUMBAI SEPT. 15. In a further move to eliminate arbitrage opportunities, the Reserve Bank of India today imposed a maximum interest rate of 100 basis points (one per cent) instead of the prevailing rate of 250 basis points (2.50 per cent) above the London Inter Bank Offered Rate (LIBOR)/SWAP for corresponding maturity on Non-Resident External (NRE) deposits.

"On a review, it has been decided that, until further notice, the interest rates on fresh repatriable Non-Resident (External) Rupee (NRE) deposits for one to three years contracted effective close of business in India on September 15 should not exceed 100 basis points (instead of 250 basis points announced on July 17), above the LIBOR/SWAP rates for U.S. dollar deposits of corresponding maturity," the RBI stated today in a release.

The RBI further stated that the maturity period of repatriable NRE deposits would continue to be one to three years and the interest rate as determined above for three year deposits would also be applicable in case the maturity period exceeds three years. The changes in interest rates will also apply to repatriable NRE deposits renewed after their present maturity period.

This measure is aimed at bringing down the excessive supplies of dollar into the Indian market. Further this is expected to narrow the wide difference in interest rate being offered to non-resident Indian (NRI) depositors in India and the prevailing rates overseas.

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