The Reserve Bank of India (RBI) governor Bimal Jalan today reiterated that the cap on interest payable on non-resident external (NRE) rupee deposits was to remove arbitrage between the domestic and overseas interest rates even as he emphasised that the build-up in foreign exchange reserves was non-debt creating.
Interest on NRE deposits was recently capped at 250 basis points above the London Inter Bank Offered Rate (Libor) so that they are on par with that offered on the Foreign Currency Non Resident (FCNR) deposits.