The Reserve Bank of India announced on Friday that it would increase the interest rate caps on foreign currency deposits made by Indian diaspora members in an effort to draw in more capital amid pressure on the rupee. RBI Governor Shaktikanta Das announced the fifth bi-monthly monetary policy for the current fiscal year, stating that the interest rate ceilings on FCNR (B) deposits, or Foreign Currency Non-Resident Bank deposits, have been raised in accordance with tenors.
The move coincides with the rupee’s recent record lows versus the dollar, and the Reserve Bank of India (RBI) appears to be using its foreign exchange reserves to control the volatility, as evidenced by the sharp decline in the value of the rupee over the past few weeks.
Starting from Friday, banks have been now permitted to raise fresh FCNR (B) deposits of 1 year to less than 3 years maturity at rates not exceeding Overnight Alternative Reference Rate (ARR) plus 400 basis points, as against 250 basis points earlier.
In the same way, deposits that mature in three to five years can now receive interest of ARR plus 500 basis points, instead of the previous cap of 350 basis points, Das stated.
