INDIAN BANK
HO/INTERNATIONAL DIVISION
and
Treasury & Investments
66 Rajaji Salai, Chennai - 600 001
Website : www.indianbank.in
FOREX NEWSLETTER
(FORTNIGHTLY)

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

News Items

> Bank Rate, Repo Rate and Reverse Repo Rate kept unchanged.

> The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially, is retained.

> CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007.

> GDP growth forecast retained at 8.5 per cent during 2007-08, assuming no further escalation in international crude prices and barring domestic or external shocks

> Inflation to be contained close to 5.0 per cent during 2007-08 while resolving to condition expectations in the range of 4.0-4.5 per cent, with a medium-term objective of inflation at around 3.0 per cent.

> Moderating net capital flows so that money supply is not persistently out of alignment with indicative projection of 17.0-17.5 per cent.

> Covering of 'Short-sale' and 'When Issued' transactions to be permitted outside the Negotiated Dealing System - Order Matching (NDS-OM) system.

> Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as 'qualified entities' for accessing the NDS-OM using the Constituents' Subsidiary General Ledger (CSGL) route.

> Reinstatement of the eligible limits under the past performance route for hedging facility to be permitted.

> Oil companies to be permitted to hedge foreign exchange exposures by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward.

> Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia.

> Authorised Dealers (ADs) to be permitted to run cross currency options books subject to the Reserve Bank's approval.

> ADs to be permitted to offer American options as well.

> Working Group to be constituted for preparing a road-map for migration to core banking solutions (CBS) by Regional Rural Banks (RRBs).

> RRBs and State/ Central Cooperative Banks to disclose their capital-to-risk weighted assets ratio (CRAR) as on March 31, 2008 in their balance sheets.

> High Level Committee to be constituted to review the Lead Bank Scheme.

> Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions.

> Working group to be constituted to lay down the road-map for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS).

> Besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk to be covered under the supervisory process.

> Action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) with centralised clearing and settlement at Mumbai.

(Source: RBI website)

The Securities and Exchange Board of India (SEBI) has allowed short selling of shares by all classes of investors, both institutional and retail. Short selling had been banned by the regulator in the wake of a scam in 2001. Short selling refers to the sale of stocks which the seller does not own at the time of selling. To provide for settlement of shares sold short, SEBI said it was also providing a mechanism of securities lending and borrowing (SLB) for all market participants. The date of implementation for this facility as well as the SLB mechanism would be announced later.

Market participants expressed their approval of the announcement. Short selling would impart balance, depth and liquidity to the market, they said. To begin with, the securities currently traded in the F&O segment shall be eligible for short selling, with SEBI reviewing from time to time, the eligibility list of stocks. Naked short selling will however not be permitted, which means that investors would have to mandatorily honour their obligation of delivering the securities at the time of settlement, said SEBI.

The settlement cycle for SLB transactions will be on a T+1 basis ( T denotes the duration for which the shares will be lent ) with these settlements being independent of normal market settlement. Both the stock exchanges and depositories have to put in systems to distinguish the lending and borrowing transactions related to short selling from the normal market transactions in the demat system.

( Source: Businessline)

RBI OPEN TO CHANGES IN CAPITAL ACCOUNT POLICY

The Reserve Bank of India is open to considering changes in the capital account and monetary management policies in tune with the changes in global liquidity conditions. The immediate focus of the apex bank, however, is on managing excess capital inflows and some volatility with regard to the excess, Dr Y V Reddy, Governor, RBI, said in his inaugural address at the 44th annual conference of the Indian Econometric Society.

“I believe that it will be prudent not to exclude the possibility of some change in course, due to any abrupt changes in sentiments or global liquidity conditions, despite strong underlying fundamentals of the Indian economy. Strategic management of capital account would warrant preparedness for all situations, and the challenges for managing capital account in such unexpected turn of events would normally be quite different,” he said. The RBI would continue to analyse and monitor “different scenarios and possible contingencies so that capital account and monetary management continue to facilitate high growth, while maintaining price and financial stability,” he said.

( Source: Businessline )

FINANCE MINISTER FOR LOWER RATE REGIME

The Finance Minister Mr P Chidambaram has said that he would prefer the lending and deposit rates to move down by 50 basis points to stimulate both investment and consumption and thereby boost economic growth. Addressing the quarterly performance review meeting with chief executives of PSBs, the Finance Minister expressed the hope that interest rates would moderate in the medium term on the back of a supportive monetary policy from the central bank. He was by and large happy with the way PSBs were discharging their social and commercial objectives. He also advised the PSBs to aggressively expand branchless banking.

( Source: Businessline )

PM PLEDGES MORE FUNDS FOR SCIENCE AND TEHCNOLOGY

The Prime Minister Dr Manmohan Singh has reiterated his assurance to increase the annual expenditure on science and technology from less than one per cent of GDP at present to 2 per cent in the next five years. He said a programme would be launched to give science innovation scholarships of Rs 5000 each to one million students over the next five years and scholarships for higher education, providing 10,000 scholarships per year of Rs 1 lakh apiece to attract talented students to graduate and post-graduate courses in science.

( Source: Businessline)

CAMBRIDGE VARSITY SETS UP NEHRU CHAIR

University of Cambridge has launched a chair on Indian business and enterprise. The Jawaharlal Nehru Professorship of Indian Business and Enterprise has been fully funded by the Indian Government with a contribution of Rs 25 crore. The chair has been set up in honour of Jawaharlal Nehru who was an alumni of the institution. It has been established to help forge closer links between the Indian and other international economies, and to promote understanding of India’s interests and its place in the world economy.

( Source: Businessline)

FOREX RESEVES RISE $2.8b

The country’s forex reserves increased by $2.837 billion at $ 275.59 billion for the week ended December 28, 2007. The foreign currency assets grew by $ 2.833 billion at $266.767 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-US currencies (euro,sterling and yen) held in reserves.

( Source: Businessline)

WPI INFLATION AT 3.50%

The annual Wholesale Price Index-based inflation rose 3.50 per cent during the week ended December 22, marginally higher than the previous week’s annual rise of 3.45 per cent, the Ministry of Commerce and Industry data showed on Friday.

The increase in the year-on-year inflation rate was primarily on account of higher prices of some manufactured products, including bread and buns and some rubber and plastic products, and fuel items.

( Source: Businessline )

INR = Finance Ministry and RBI appears to have formally come to the point that with surging inflows INR is bound to appreciate and any intervention impact is likely to be shortlived. Range expected 38.80 – 39.80.

EUR = EUR looking steady with an upward bias. USD likely to lose some more ground in the beginning of the year. Expectation of a 25 bps rate cut in US is likely. Range expected 1.4625 to 1.4995.

GBP = GBP looking steady with a bearish undertone. Underperformance of the economy might prompt BOE for a further 25 bps rate cut in the coming months. Range expected 1.9640 to 2.0035. EUR GBP looks highly overbought and some correction is anticipated which might push GBP up for the time being.

JPY = JPY looks bearish as weak US jobs data has fuelled the expectation of further rate cuts in US and a likelihood of US economy entering into recession. Range expected 107.25 to 110.45.JPY looks bearish as weak US jobs data has fuelled the expectation of further rate cuts in US and a likelihood of US economy entering into recession. Range expected 107.25 to 110.45002E

PS: Views expressed here are only indications. The Bank or any of it's officials will not be responsible for any consequences of any decisions taken on the basis of these indications.

FCNR (B) DEPOSITS (w.e.f. 01.01.2008)						NRE(w.e.f.01.01.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	3.47	4.99	4.00	3.80	6.96	4.22
2 Years & above but less than 3 years	3.10	4.52	3.79	3.49	6.73	3.85
3 Years & above but less than 4 years	3.20	4.42	3.78	3.59	6.79	3.95
4 Years & above but less than 5 years	3.34	4.41	3.79	3.68	6.86	3.95
5 years only	3.47	4.39	3.82	3.73	6.80	3.95
SB NRE - 3.50 % at par with domestic savings deposit

 

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