Attractive interest rates on term deposits for non-resident Indians (NRIs) and investment options in domestic debt played in favour of the rupee, as it traced its way back to two-month high levels.
On Wednesday, the rupee closed at the day’s high of 50.38 against the dollar, up 0.7 per cent against yesterday’s close of 50.71, which was a two-momth high. This was the fifth consecutive daily gain for the currency.
“We are getting good inflows in NRI deposits. With new norms in place, I don’t think the rupee would fall below 52 levels now,” said a treasury head with a large public sector bank. As part of measures taken to stem the rupee’s depreciation, the Reserve Bank of India (RBI) had deregulated the interest rates on non-resident external rupee (NRE) deposits. Banks were allowed to offer interest rates to NRIs on a par with domestic term deposits and these now offer interest rates of 9-9.5 per cent on NRE term deposits.
According to RBI, the balance in the NRE deposits stood at $26 billion in November. This is expected to have gone up substantially, as NRIs would avail of the weak rupee and higher interest rates on deposits.
On the other hand, the pressure on dollar liquidity has reduced as a result of the central bank’s measures to check artificial demand. “The demand for dollars has come down, as speculative trades are gone. Now, the demand is only to cover business positions,” said Param Sarma, director and chief executive, NSP Treasury Risk Management Services.
In December, RBI had disallowed canceling and rebooking of forward contracts and imposed reduced limits on the net overnight open positions of banks.
