RBI hike in foreign currency interest rates to improve liquidity

RBI has decided that the interest rate ceiling with respect to FCNR(B) deposits be increased by 25 basis points. Accordingly, the interest rates on FCNR(B) deposits of all maturities contracted effective close of business in India on March 28, 2006 should not exceed LIBOR/ SWAP rate (as against 25 basis points below the LIBOR/SWAP rate effective April 29, 2002) prevailing on the last working day of the previous month for relevant maturity and currency.

On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency / maturity. For floating rate deposits, the interest reset period shall be six months.

Banks in India accept FCNR(B) deposits denominated in US dollar, Pound Sterling, EURO, Canadian dollar, Australian dollar and Japanese Yen for maturity period of 1-5 years.

RBI hike in the interest that banks can give to NRIs on their dollar deposits is expected to step up dollar inflows and ease liquidity. More dollar inflows will make it possible for banks to give dollar loans and swap the dollar into rupees to give rupee loans.



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