NRE deposits hit 10-year high in Jan on rising rates, weak Re

Further to the article posted on 11th March on is the rupee undervalued? The NRE deposits have hit an all-time high.

At a time when the government is looking for ways to attract foreign fund inflow, the spike in non-resident (external) rupee (NRE) deposit rates has brought some relief with non-resident Indians (NRIs) routing their savings substantially into NRE accounts.

While NRI fund inflow into NRE deposits in the month of January hit a 10-year high of $1.56 billion (over Rs 7,800 crore), the total inflow for FY’12 till January stood at $5.09 billion (around Rs 25,000 crore).

With data for February and March still to come, this is the highest-ever inflow in the NRE account in a financial year after FY’03 — when the net inflow stood at $6.19 billion.

NRE accounts are where NRIs can park their overseas savings that are remitted toIndiaby converting into rupee.

The surge in inflow can be primarily attributed to the move taken by the Reserve Bank ofIndiain December 2011 to deregulate interest rates on NRE deposits, following which banks raised their offering on such deposits from around 3.8 per cent to up to 9.5 per cent. The depreciation of rupee during the recent times also played a crucial role.

The rupee was trading at over 50 against a dollar till January, pushing investors to route their investment into rupee accounts to take the advantage.

Economists feel that even though this money is debt creating there is nothing to worry about since the composition of money has changed post liberalisation and also this is a stable source of funds.

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