Interest rate ceiling on NRE deposits hiked

The Reserve Bank of India on Tuesday increased the interest rate ceiling on non-resident rupee deposits and export credit in foreign currency, while keeping the short-term and long-term rates untouched.

Retaining the current interest rate on savings deposits, the central bank, however, favoured deregulation of these rates in the long run for product innovation and price discovery.

Currently, the interest rate on savings is at 3.5 per cent per annum.

The Monetary and Credit Policy 2006-2007

In the Annual Policy Statement for 2006-07, RBI increased the interest rate ceiling on non-resident (External) deposits in rupee for one to three years maturity by 0.25 per cent to one per cent above LIBOR/SWAP rates for US dollar of corresponding maturity with immediate effect.

After the recent increase in Foreign Currency Non-Resident deposit interest ceiling by 0.25 per cent, the hike in interest rate ceiling of NRE deposits appears to be aimed at ensuring adequate liquidity in the system by attracting more NRI deposits.

Also, the interest rate on export credit in foreign currency, currently within the ceiling of LIBOR plus 0.75 per cent, has been increased by 0.25 per cent to be LIBOR plus one per cent with immediate effect.

Further, the apex bank has asked the Indian Banks' Association to undertake a comprehensive review of interest rate on savings bank deposits and lending rates on small loans up to Rs 200,000.