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 Prime Minister’s Economic Advisory Council (EAC) has forecast the Indian economy to grow by 8.5 per cent during 2008-09, despite the likelihood of a slowdown in the US and the developed world. “The Indian economy is much less dependent on the external markets than the Chinese economy, for example. Thus, while some export demand compression is likely to put an additional burden on our exporters of goods and services, it is unlikely to be large enough to significantly depress growth,” the EAC, headed by Dr C Rangarajan, has said in its “Review of the Economy 2007-08” report released here on Thursday. The report has also marginally revised downwards its growth estimate for the current fiscal to 8.9 per cent, against the earlier projection of nine per cent made in July.

This, in turn, is due to agriculture doing better than previously expected (3.6 per cent against 2.5 per cent), while the respective growth rates for industry and services have been put lower at 9.7 per cent and 10.3 per cent (compared to the corresponding July projections of 10.6 per cent and 10.4 per cent). Admitting that the global environment “looked benign” when its July report was presented, the EAC has noted that the situation has “changed dramatically since in the wake of the sub-prime housing mortgage crisis in the US” and “a general consensus” of a slowdown in its economy in 2008. But the Council is of the opinion that the “slowdown will be a modest one which would not significantly impact India’s next year’s growth prospects by much”.

Taking all factors into account, “the Council expects the economy to grow at about 8.5 per cent in 2008-09, the report has stated.

( Source: Businessline)

INDIA CAN WITHSTAND IMPACT OF US RATE CUT: FINANCE MINISTER

The Union Finance Minister Mr P Chidambaram said that interest rate cut in the US would affect India but India’s high exports to other countries, including China and Japan, would insulate it from any crisis. Though a drastic cut in interest rates by the US to avert a recession will affect India, the Government would take steps to counter such an impact, Mr Chidambaram said. Although India enjoys a trade surplus with the US, which also happens to be its largest trading partner, India has “equally large exports to Europe, to eastern countries like China and Japan. Therefore, a slight slowdown in US will not immediately or drastically affect India’s growth prospects,” he said.

“However, if the US, as a response to the slowdown, cuts interest rates very drastically, that will widen the difference between the US interest rate and Indian interest rate and that has consequences like capital flow and faster appreciation of the rupee,” he pointed out.

( Source: Businessline )

INDIAN TECH WORKFORCE IS 2 MILLION STRONG

Technology workforce in India is set to cross the magical two million mark, with the march from 1 million to 2 million happening just about three years. This reflects both the sector momentum and appetite for growth fuelled by increasing interest in India as a preferred outsourcing destination and also availability of a large technical workforce.

“In a sector where the focus traditionally has been on financial performance of companies and the overall export numbers of the sector in general, it is heartening to note that the focus is now on headcount addition and job creation,” according to Mr Kiran Karnik, President of NASSCOM said. A recent report from Crisil suggested that for every one employed in the technology sector, it creates four other jobs which implies that the sector provides employment to about 10 million people directly and indirectly. Mr Karnik said that this was no mean achievement for the sector as the formal sector in the country employs about 30 million people.

( Source: Businessline )

NANO MAKES IT TO TIME’s MOST IMPORTANT CARS OF ALL TIME

In the midst of all the attention that the Nano is still getting, comes one of the first recognitions of its potential to create history. TIME magazine, in a presentation titled “The dozen most important cars of all time starting from 1908 to the present,” has listed the Tata Nano along with legendary cars like the Ford Model, the Volkswagen Beetle, Chevy Belair, Toyota Corolla, the Mini and the Honda Civic. Listing the 12 cars in chronological order, the TIME magazine presentation says only these ‘few automobiles have been able to fundamentally change the way we live and dream’. As for the Nano, TIME says “India’s ‘people’s car’, as it is already dubbed, is intended to put motoring within reach of Asia’s masses. At $2500, it’s hard to see it how it won’t sell, but even if it doesn’t it will become the poster car for a new, stripped-back style of engineering glue instead of welds! – that could change the world”.

( Source: Businessline)

THE LOVE-HATE STORY OF THE RUPEE AND THE $

The slide on the screen showed $40 = Re 1. The year – 2050. There was a gasp from the audience followed by applause as the realisation of what was coming sunk in. The session was a talk on the rising rupee, given by Prof P C Narayan, IIM-B, at a meet organized by the Department of Management Studies of IIT, Chennai. In a lecture that provided the theoretical background to the fluctuating currencies and recent developments on the rupee-dollar front. Prof Narayan said that India was getting it right with its policy options now. Arguing that the rising rupee was a reality that everyone had to come to terms with, he drew the parallel of the Japanese which moved from 260 to a dollar to 110 per dollar in just about a year in the mid-eighties and yet Japan survived. In the recent past, the Thai baht mad moved from 55 to 34 per dollar while the Indonesian Rupiah had moved from 18000 to 9000 per dollar in the same period that the Indian rupee has moved from 44 to 39 per dollar. He further added that the Government had to encourage capital outflow and curtain capital inflows since the current policy of investing the surplus in US dollar securities was giving a very low return.

( Source: Businessline)

INR = Global uncertainty in stock markets and US recession gradually setting in, is the backdrop of this fortnight’s currency outlook. US rate cut of 50 basis points has already been priced in. Range expected 38.80 – 39.80.

EUR = Although USD likely to suffer due to further rate cuts and likely recessionary pressure but the effect of this economic onslaught is likely to spill over to Europe. Range expected 1.4480 – 1.4750.

GBP = GBP looks bearish as Northern Rock problem and other credit market defaults likely to effect GBP to a great extent. Although UK government is trying to do damage control exercise and save the situation but the currency looks bearish. Range expected 1.9345 – 1.9670.

JPY = More and more uncertainty and global melt down in stocks bringing risk aversion into fore and funding of high risk trade by low interest bearing currencies taking a break. JPY looks bearish and range expected 105.00 – 108.20.

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. 01.02.2008)						NRE(w.e.f.01.02.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	2.10	4.61	3.57	3.05	6.93	2.85
2 Years & above but less than 3 years	2.09	4.23	3.22	2.84	6.63	2.84
3 Years & above but less than 4 years	2.33	4.21	3.22	3.02	6.62	3.08
4 Years & above but less than 5 years	2.57	4.24	3.27	3.16	6.63	3.08
5 years only	2.78	4.24	3.33	3.27	6.57	3.08
SB NRE - 3.50 % at par with domestic savings deposit

 

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