interest rates on indian rupee are rising. whereas interest rates in dollars are not. as well as due to appreciation of rupee, when you convert dollars to ruppes to invest, then get highre interst rates, and reconvert at maturity into dollars you are also gaining on the appreciation of rupee, apart from higher interest. hence no investor coming into india, wants to invest in dollar denomination, but is converting his dollars to rupees, and then giving the money on interest. this further is adding to the deluge of the dollars into the country. a reduction in interest rates, on rupees and incrtease of the same in dollars, could keep the rupee still weak against the dollars. as its not the increase of exports or insurgence of tourism thats leading to the strengthning of the rupee
Dollar interest rates are kept low because supply is more than demand.
Dollar deposits are just kept in US treasuries for 5.5% return and deposit holder is paid any where between 4.3 to 4.9%. And differential is kept as profit by banks.
