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, Reverse Repo Rate, Repo Rate and Cash Reserve Ratio (CRR) kept unchanged.

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

> Overall real GDP growth projection for 2007-08 at around 8.5 per cent is retained.

> The policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08 while conditioning expectations in the range of 4.0-4.5 per cent.

> While non-food credit has decelerated, growth in money supply and aggregate deposits of scheduled commercial banks continue to expand well above indicative projections.

> High growth in reserve money is driven by large accretion to RBI’s net foreign exchange assets.

> Barring the emergence of any adverse and unexpected developments in various sectors of the economy and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in the period ahead will broadly continue to be:

>> To reinforce the emphasis on price stability and well-anchored inflation expectations while ensuring a monetary and interest rate environment conducive to continuation of the growth momentum and orderly conditions in financial markets.

>> To emphasise credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

>> To monitor the evolving heightened global uncertainties and domestic situation impinging on inflation expectations, financial stability and growth momentum in order to respond swiftly with both conventional and unconventional measures, as appropriate

> Over the period ahead, liquidity management will continue to assume priority in the conduct of monetary policy and developments having implications for liquidity management would warrant appropriate and timely action. The Reserve Bank will continue with its policy of active demand management of liquidity through appropriate use of the CRR stipulations and open market operations (OMO) including the MSS and the LAF, using all the policy instruments at its disposal flexibly, as and when the situation warrants.

(Source: RBI website)

The Federal Reserve lowered its benchmark interest rate by half a point to 3 percent, the second cut in nine days, and indicated its willingness to do so again to prevent a U.S. recession. ``Downside risks to growth remain,'' the Federal Open Market Committee said in a statement after meeting today in Washington. In a reference to the volatility of the past five months, the Fed added that ``financial markets remain under considerable stress and credit has tightened further for some businesses and households.''

The cumulative reduction in rates since Jan. 22 is the fastest easing of monetary policy since 1990. Fed officials said they will continue to assess financial markets and the economy ``and will act in a timely manner as needed. Recent information indicates a deepening of the housing contraction as well as some softening in labor markets,'' the central bank's statement also noted. Chairman Ben S. Bernanke and the Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, to 3.5 percent from 4 percent. Dallas Fed President Richard Fisher dissented from today's decision, preferring no change.

( Source: Bloomberg)

RBI expects inflation to be in 4 – 4.5% per cent range in 2009

The Reserve Bank of India expects inflation to remain between 4 and 4.5 per cent in the next fiscal. Despite global uncertainties, the RBI’s target for GDP growth remain on tract at 8.5 per cent. “In 2009, after recognising the possible uncertainties in the global situation we should aim for at least 8.5 growth, if not more. Inflation should go to 4-4.5 per cent in 2009. If we ant global integration, then 4 per cent is better and that is what we should have in 2009”, Dr Y V Reddy, Governor, RBI, said.

( Source: Businessline )

BPO sector can see 5-fold growth

The Indian BPO industry, currently pegged at $11 bn, could see a five-fold growth over the next five years if the industry, government and other stakeholdes collaborate to address key issues such as education and infrastructure, a report published by Nasscom and Everest Group said. By 2012, the Indian BPO industry could be valued at $50 bn, generate about two million direct jobs and add upto 2.5 per cent to India’s GDP. The report speaks of eight action themes the stakeholders of the Indian BPO industry need to act on, which include protecting India’s cost advantage, creating BPO hubs and development of BPO-specific education models.

( Source: Businessline )

INR = The interest differential as well as the pace of development will surely attract inflows. Besides government is likely to lure more FDI during the current year. Although stock market turmoil will give room for more outflows, overall INR likely to gain strength. Range expected 39.00 to 39.75

EUR = The expectation of recession setting in US economy got a boost from the pay roll figure which showed that US economy has shed more jobs last month for the first time in 4½ years. However the manufacturing index reflected expansion and market promptly reacted in favour of dollar. Range expected 1.4510 to 1.4980

GBP = GBP was worst hit on ISM index showing signs of expansion. Besides market expectation of a rate cut has also taken its toll. Range expected 1.9375 to 1.9885.

JPY = JPY looks rangy and the rates expected to remain between 105.50 to 107.50. Although USD has recovered due to short term profit taking but the underlying weakness still persists.

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. 01.03.2008)						NRE(w.e.f.01.03.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	1.96	4.81	3.64	3.10	7.66	2.71
2 Years & above but less than 3 years	1.87	4.16	3.08	2.74	7.03	2.62
3 Years & above but less than 4 years	2.19	4.14	3.08	2.95	6.99	2.94
4 Years & above but less than 5 years	2.48	4.18	3.13	3.10	7.01	2.94
5 years only	2.74	4.21	3.21	3.23	6.96	2.94
SB NRE - 3.50 % at par with domestic savings deposit

 

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