The decision to de-regulate interest rates on such deposits comes within 24 hours of RBI putting restrictions on forward contract in rupee to check speculations in the forex market. The RBI had already freed the saving and deposit rates for resident bank customers.
The decision will give banks the freedom to fix rates on Non-Resident (External) rupee deposits and Ordinary Non-Resident (NRO) accounts with immediate effect. “With a view to providing greater flexibility to banks in mobilising non-resident deposits and also in view of the prevailing market conditions, it has been decided to deregulate interest rates (such accounts),” the RBI said in a circular. “Interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits,” it added.
The deregulation in rates on NRE and NRO deposits is intended to make such funds more attractive at a time when the rupee has depreciated sharply during last few months. “The move will increase supply of foreign currency, including dollar, in the system,” Crisil Chief Economist D K Joshi commented.
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