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NRE rate cap to check arbitrage

Mumbai, July 22: Reserve Bank governor Bimal Jalan today said that the apex bank had capped interest rates on non-resident (external) rupee (NRE) deposits to contain the possibility of arbitrage.

“The RBI took the decision to cap NRE rate mainly to bring parity with foreign currency non-resident (bank) rates and also to address any possible rate arbitrage,” he said. He was speaking at a function to confer the outstanding businessman of the year award on ICICI Bank managing director K. V. Kamath.

On July 17, the RBI had capped the rate on fresh repatriable NRE deposits of one to three years at 2.5 per cent above the London inter-bank offered rate (Libor).

On the foreign exchange inflows and its management, he said that inflows are not debt creating and that there is no cost involved.

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