Dollar Inflows Not On NRI Arbitrage: RBI

Mumbai, May 22: | Updated: May 23 2003, 05:30am hrs
The Reserve Bank of India (RBI) on Thursday dismissed speculations that inflows into non-resident Indian (NRI) deposits had been taking place as NRIs were exploring arbitrage opportunities in the context of the recent appreciation of the rupee against the greenback.

The rupee, however, closed four paise lower against dollar at 46.90/91 on Thursday as state-run banks bought dollars heavily, ending the straight three-day gains. Forward premia also tightened taking cue from the strengthening of dollar in the spot market. Both the six-month and one-year annualised premia closed higher at 0.54 per cent (0.30 per cent) and 0.61 per cent (0.36 per cent), respectively.

On net inflows under various NRI deposit schemes, RBI said that inflows into total NRI rupee deposits during fiscal 2002-03 amounted to $2.804 billion, marginally higher than $2.728 billion in the preceding fiscal. Thus, there is no significant increase in the inflows, RBI said.

The trend has been similar even during the last quarter of the fiscal 2002-03 (January-March), when the dollar was depreciating against the rupee. The inflows into NRI deposits during this period amounted to only $434 million, marginally lower than $474 million during the same period last fiscal.

The NRI rupee accounts include inflows into non-resident (external) rupee accounts (NRE account) as well as non-resident (non-repatriable) rupee deposits (NRNR account).

RBI mentioned that due to the discontinuation of NRNR deposits effective April 1, 2002, there has been an outflow of $3.704 billion from these accounts into NRE account.

It also said that the minimum maturity period of the fresh NRE deposits has been increased from six months to one year, similar to FCNR(B) deposits.

The RBI issued a press release to counter the speculation on NRIs arbitrage opportunities in the context of Indias strong foreign exchange position and the recent appreciation of the rupee against the greenback. Though the central bank brushed off a like case, it acknowledged that arbitrage opportunities are possible on account of higher domestic rupee interest rates than the dollar/euro interest rates abroad. It may be noted that there is a wide differential between the US and domestic interest rates. The Fed rate is currently at 1.25 per cent, while the six-month Libor is at 1.22 per cent. The bank rate the local reference rate is at six per cent.