Accretion to non-resident external deposits was down by almost 50 per cent at $495 million in July as against $1 billion in June, according to Reserve Bank of India's latest bulletin.

The inflows into the NRE deposit scheme has ebbed as the central bank, on July 17, capped the interest rates payable by banks on NRE deposits to 250 basis points above the London Inter Bank Offered Rate (Libor).

The RBI, last month, followed up this announcement by slashing the interest rates payable by banks to 100 basis points over Libor.

The RBI capped the interest rates on NRE deposits so that arbitrageurs do not capitalise on the interest rate differentials between overseas and domestic markets.

The rupee has gained 5.8 percent since the start of the calendar year on the back surging inflows from expatriate Indians, trade and foreign institutional investors.

These inflows have also pushed up India's foreign exchange reserves to nearly $88 billion.

According to the bulletin, the RBI bought a net $2.35 billion from the domestic currency market in August 2003. The Reserve Bank of India bought $3.71 billion and sold $1.36 billion.

Its outstanding net forward purchases at the end of August totalled $4.803 billion compared with $4.549 billion the previous month.