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RBI Support INR – NRE Deposit Rates Raised

September 17, 2008

With the rupee weakening to a low of Rs46.8/US$1 and call money rates spiking to 16%, the RBI announced a host of measures late last evening to stem market volatility.

  • Reserve Bank will continue to sell foreign exchange (US dollar) through agent banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps.
  • Increase, with immediate effect, the interest rate ceiling on FCNR (B) deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates minus 25 basis points.
  • Increase, with immediate effect, the interest rate ceiling on NR(E)RA deposits by 50 basis points, i.e., to Libor/Euribor/Swap rates plus 50 basis points.

Given the volatile market situation, near term rupee weakness is likely to continue and could trade in the Rs45-47 range. Although portfolio flows will likely remain negative, FDI remains buoyant and hence by March 09 INR is likely to be around Rs 43 levels to the USD.

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