INDIAN BANK
HO/INTERNATIONAL DIVISION
66 Rajaji Salai, Chennai - 600 001
Website : www.indian-bank.com
FOREX NEWSLETTER
(FORTNIGHTLY)

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(02/05/07 - 15/05/07)

News Items

· Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
· Scheduled banks required to maintain CRR of 6.5 per cent with effect from the fortnight beginning April 28, 2007.
· GDP growth projection for 2007-08 at around 8.5 per cent.
· Inflation to be contained close to 5.0 per cent during 2007-08. Going forward, the resolve is to condition policy and perceptions for inflation in the range of 4.0-4.5 per cent over the medium term.
· M3 expansion to be contained at around 17.0-17.5 per cent during 2007-08.
· Greater emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment that supports growth momentum.
· Swift response with all appropriate measures to all situations impinging on inflation expectations and the growth momentum
· Renewed focus on credit quality and orderly financial markets conditions in securing macroeconomic, in particular, financial stability.
· Deposits projected to increase by around Rs.4,90,000 crore during 2007-08.
· Adjusted non-food credit projected to increase by around 24.0-25.0 per cent during 2007-08, implying a graduated deceleration from the average of 29.8 per cent over 2004-07.
· Appropriate liquidity to be maintained to meet legitimate credit requirements, consistent with price and financial stability.
· Ceiling interest rate on FCNR (B) deposits reduced by 50 basis points to LIBOR minus 75 basis points.
· Ceiling interest rate on NR(E)RA deposits reduced by 50 basis points to LIBOR/SWAP rates.
· Average cut-off yield on 182-day Treasury Bills to be used as a benchmark rate for floating rate bonds.
· Working Group to be set up to go into all the relevant issues and suggest measures to facilitate the development of interest rate futures market.
· Overseas investment limit (total financial commitments) for Indian companies enhanced to 300 per cent of their net worth.
· Listed Indian companies limit for portfolio investment abroad in listed overseas companies enhanced to 35 per cent of net worth.
· Prepayment of external commercial borrowings (ECBs) without prior Reseve Bank approval increased to US $ 400 million.
· Present limit for individuals for any permitted current or capital account transaction increased from US $ 50,000 to US $ 100,000 per financial year in the liberalised remittance scheme.
· A Working Group on Currency Futures to be set up to suggest a suitable framework to operationalise the proposal in line with the current legal and regulatory framework.
· Introduction of a credit guarantee scheme for distressed farmers.
· Risk weight on residential housing loans to individuals for loans up to Rs.20 lakh reduced to 50 per cent as a temporary measure.
· Ceiling rate of interest payable by NBFCs (other than RNBCs) on deposits raised by 150 basis points.

(Source: RBI website)

The measures outlined in the annual supplement to the Foreign Trade Policy (FTP) to cut down transaction cost and time to exporters would be monitored by the Commerce Ministry and Directorate General of Foreign Trade (DGFT) regularly to ensure that such costs are slashed by 50 % by 2009. The Government wanted to ensure export basket in all continents and countries so that any sudden fluctuations in one way or the other does not affect the overall export, the Commerce Secretary to the Govt of India said.
The investment in the textile industry was in the order of Rs: 40,000/- crore over the last couple of years which would get reflected in higher production and export volume in the next few years. Regarding the export target of $160 billion set for the current fiscal, the Commerce Secretary said that a meeting of the Export Promotion Councils and Commodity Boards would be convened next month to fix sectoral target and assess the growth.


(Source: The Businessline)

TAX COLLECTIONS EXCEED BUDGET, REVISED ESTIMATES

For the first time in recent history, the actual collections in direct and indirect taxes have exceeded both the budget estimates and the revised estimates. Direct tax collections were Rs: 2,29,181 crores as against the budget estimate of Rs: 2,10,419 crores. Indirect tax collections were Rs: 2,40,896 crores as against the budget estimate of 2,29,533 crores. The Finance Minister observed that higher GDP growth, better compliance and better tax administration were the main factors behind this strong revenue collection performance.

INR = INR has posted smart gains in a short span. Looks attractive for importers on historic highs and hence the occasional jerks. Soft data from US only adds to INR's strength. Range expected 40.60 to 41.70. Sell on rallies preferred. RBI intervention will only give more opportunity for selling USD.

EUR = EUR looks bullish and might try 1.3750 if 1.3680 is broken. Softer data from the US is supporting the upside in EUR. Immediate support seen around 1.3570 followed by 1.3430. Rate hike possibility and overall USD weakness will keep EUR biddish in the ensuing fortnight. Against, INR EUR to trade between 55.10 to 57.40.

GBP = GBP also looks biddish on the same factors as for EUR and might trade between 1.9765 and 2.0130. Buying on dips suggested. Against INR GBP to trade between 80.25 to 84.00.

JPY = Carry Trade factor is still active and continues to keep the Yen weak. Range expected 117.45 to 121.10. Buying on dips suggested. Against INR range expected 33.50 to 35.50

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. 01.05.2007)						NRE(w.e.f.01.05.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	4.55	5.23	3.55	3.68	5.82	5.30
2 Years & above but less than 3 years	4.31	5.12	3.64	3.69	5.75	5.06
3 Years & above but less than 4 years	4.26	5.08	3.64	3.71	5.76	5.01
4 Years & above but less than 5 years	4.26	5.03	3.64	3.72	5.79	5.01
5 years only	4.29	4.98	3.64	3.74	5.77	5.01
SB NRE - 3.50 % at par with domestic savings deposit

 

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