Reacting to the sharp dip in the value of the rupee, RBI on Tuesday announced a series of forex measures, hiked interest rates on FCNR (B) deposits and NR(E)RA deposits and expanded the liquidity adjustment facility scheme.
It joins central bankers across the globe that have instituted liquidity support measures in their respective markets, led by the US Fed, which pumped in $70 billion in additional funds. In the last two days, FIIs have withdrawn $368 million from Indian markets.
RBI also increased with immediate effect the interest rate ceiling on FCNR deposits by 50 basis points pertaining to Libor or Euribor, or swap rates minus 25 bps. Currently, the interest rate ceiling on FCNR (B) deposits of all maturities has been fixed at Libor for the corresponding maturities minus 75 bps for the respective foreign currencies. This will encourage overseas depositors in Indian banks to stay invested.
The interest rate ceiling on NR(E)RA deposits has been raised by 50 bps pertaining to Libor or Euribor, plus 50 bps. This account is hugely popular with overseas Indians, including PIOs, to park their rupee funds.
RBI has also decided that in addition to allowing banks to obtain liquidity from RBI under the liquidity adjustment facility (LAF) against eligible securities in excess of their prescribed SLR, scheduled banks may avail of additional liquidity support under LAF up to 1% of their net demand and time liabilities and seek waiver of penal interest.
?This measure is ad hoc, temporary in nature and will be reviewed on a continuous basis in the light of the evolving liquidity conditions. The additional liquidity support will be available with effect from the LAF or SLAF auctions of September 17, 2008,? the central bank stated. In view of the current liquidity conditions, the second LAF scheme will be conducted on a daily basis.
RBI said it would continue to sell foreign exchange through agent banks to augment supply in the domestic foreign exchange market, or intervene directly to meet any demand-supply gaps. RBI will either sell foreign exchange directly or advise the bank concerned to buy it in the market. All the transactions by RBI will be at the prevailing market rates.