RBI to cut swap rate on forex deposit by 1 pc from March 1

The Reserve Bank today extended the deregulated interest rate scheme for FCNR, NRE deposits by another one month till February 28 and cut 1 per cent interest rate on 3-5 years FCNR (B) deposit from March 1.
The new rates will be LIBOR/Swap plus 300 basis points from existing LIBOR/Swap plus 400 basis points for maturities of three to five years, the RBI said.
The central bank had raised the ceiling to LIBOR/Swap plus 400 basis points to help attract more inflows from abroad.
However, the ceiling on its swap windows for FCNR-(B) of more than one-year but less than three-year maturities will remain at the existing LIBOR/Swap plus 200 basis points.

The deregulated interest rate scheme for foreign currency non-resident deposits FCNR-(B), Non Resident External Account (NRE) has been extending considering current volatility in the forex market due to US Fed tapering.
"On a review and in order to give banks some time, it has been decided to extend the above dispensation till February 28," RBI said in a notification.

"With effect from March 1, the interest rate ceiling will revert to the position prior to August 14, 2013, i.E. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits," it said.

As per the earlier notification, the special window was available only till January 31, 2014.
The RBI also said banks will continue to get exemption provided on such deposits from CRR and SLR requirements during this period.
It has been decided that the interest rate ceiling on FCNR
(B) deposits will continue till February 28, RBI said in a separate notification.
Earlier this week, the US Federal Reserve decided to cut its bond purchases further by another USD 10 billion. It has decided to purchase USD 65 billion per month of mortgage backed securities and longer-term treasury securities as against USD 75 billion per month earlier.

Following the announcement, forex market across the globe witnessed volatility.
To shore up dollar inflows to contain current account deficit and to stem the resultant fall in the rupee, the central bank had on August 14 had lifted the interest rates ceiling on FCNR(B) deposits up to November 30 last year.
This was further extended in December 31 and later to January 31.
Accordingly, the RBI allowed banks to offer Libor/swap plus 200 basis points on such deposits of one-three years and Libor/swap plus 300 basis points on three-five years bucket.
The RBI had said on floating rate deposits, interest would be paid within the ceiling of swap rates for respective currency/maturity plus 200 bps/400 bps as the case may be, while for floating rate deposits, the interest reset period would be six months.