RBI raised Interest Rate Ceiling on NRI Deposits in Foreign Currencies by up to 3%

The Reserve Bank of India (RBI) on 4 May 2012 raised the interest rate ceiling on NRI deposits in foreign currencies by up to 3%. The interest rate ceiling on Foreign Currency Non-Resident FCNR (B) deposits of banks was raised from 125 basis points (bps) (1.25%) above the corresponding LIBOR or swap rates to 200 bps for maturity period of one year to less than three years, and to 300 bps for maturity period of three to five years. The RBI’s measure was aimed at checking flight of foreign currency in the wake of continued fall in the value of the Indian rupee.

 
The Indian banks will from now on be able to offer higher interest rates on NRI deposits in foreign currency. The central bank 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 measures adopted by the central bank are aimed at arresting the declining value of the Indian rupee which closed at Rs53.47 against a dollar. 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.

Reserve Bank of India also decided to allow banks to determine their interest rates on export credit in foreign currency with effect from 5 May 2012.