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 Union Government has reduced the customs duty on several crude edible oils to zero and fixed the customs duty for refined edible oils at 7.5 per cent in an attempt to rein in inflation. It banned the export of non-basmati rice with immediate effect and set the minimum export price of basmati rice at $1200 a tonne. The ban on export of all pulses has been extended for a year from April 1.

After a meeting of the Cabinet Committee on Prices chaired by the Prime Minister, the Finance Minister announced a slew of measures to impact the rising prices. The inflation touched 6.68 per cent last week.

The customs duty on butter and ghee has been reduced from 40 to 30 per cent, the duty on maize reduced from 15 per cent to zero per cent under the Tariff Rate Quota for five lakh tonnes. The import of crude edible oils at zero duty and refined edible oils at 7.5 per cent customs duty would apply, among others, to palm, sunflower, soyabean, coconut and groundnut oils. Hydrogenated vegetable fats and oils can now be imported at 7.5 per cent duty. However, the tariff values will remain unchanged till further orders. The Government has allowed the export of castor oil, coconut oil and oils made from minor forest produce, excluding sesame oil. However, coconut oil will only be exported from Kochi.

The order on removal of stock limits under the Essential Commodities Act was kept in abeyance for edible oils, oilseeds and rice, the Minister said. He urged the States to implement the order to prevent hoarding. Inter-state movement and exports have been excluded from this order. So far only six States have imposed stock limits. All decisions would come into force with effect from April 1, 2008.

( Source: Businessline)

DUTY ENTITLEMENT PASS BOOK SCHEME EXTENDED ‘TILL FURTHER ORDERS’

The Directorate General of Foreign Trade (DGFT) stated that the Duty Entitlement Pass Book (DEPB) scheme which was valid for shipments up to March 31, 2008, has been extended till further orders. A statement issued by the DGFT said that this would facilitate shipments to be allowed under the Scheme by the field formations of Customs even beyond March 31. It was further clarified that the DEPB rates announced effective from April 1, 2007 and subsequent amendments made in them should continue for all exports under DEPB scheme even after March 31.

The DEPB scheme provides reimbursement of customs duty and allows manufacturer- exporters to use partly or fully domestic inputs and the scheme refunds the customs duty as if the domestic inputs had been imported. It thus promotes the use of domestically produced/sourced inputs in the production of exported-products. However, it came under the WTO scanner and was deemed WTO-incompatible because the scheme does not require imports to be made of the inputs used in the production process. Besides, the fact that the duty credit is freely transferable disconnects altogether eventual imports against which it is used from the actual inputs used in the production process of the exported product.

( Source: Businessline )

CAPITAL FLOWS LIFT SURPLUS IN BALANCE OF PAYMENTS

The country’s net foreign exchange earnings from software and other services rose by nearly 50 per cent in the quarter ended December 2007 compared to the same period last year, the Reserve Bank of India data on Balance of Payments released here on Monday revealed. These services grew from $6.167 billion this time last year to $9.270 billion during this period, with net software exports alone contributing $2.40 billion to the increase.

Keeping pace with software exports are private transfers from individuals (principally non-resident Indians abroad) and corporate entities whose net inflows of foreign exchange showed a similar near 50 per cent rise. These inflows added another $11 billion in the third quarter of the fiscal 2007-08 compared to their contribution of roughly $7.25 billion in the previous year.

While India continues to service (dividends/interest charges) overseas investments into the country by an increasing order ($4.4 billion – up roughly ten per cent over the same quarter in 2006-07) in the latest quarter for which the data has been released, its investments abroad too are beginning to pay. Such investments fetched nearly $3.5 billion in the third quarter compared to $2.2 billion last year.

Portfolio investments by foreign investors saw one of the largest increases in recent times with inflows in the latest quarter going up by as much as $14.561 billion as against net inflow of only $3.562 the same time last year. Direct investments, however, saw a modest fall during this period with net inflows on this count registering only $7.189 billion as against $9.723 billion.

( Source: Businessline )

RBI TO TAKE APPROPRIATE ACTION TO BRING DOWN INFLATION: GOVERNOR

The Reserve Bank of India is in full readiness to take appropriate action as inflation is ‘unacceptably high’, the RBI Governor has said. He said the Government was taking several supply side initiatives to contain inflationary pressures. At the same time, the increase in global prices for relevant items was far higher than what has happened in India so far. So, there was a potential for inflationary pressures from the global side on India prices, the Governor said. Domestic inflation touched a 13-month high of 6.68 per cent for the week ended March 15.

The Governor, however, gave a favourable outlook for the Indian economy: "Overall, the RBI is confident that in terms of growth and stability, India will continue to be one of the best performing economies in the world, in the months ahead."

( Source: Businessline )

INR = Higher rates and Government’s good intentions of curbing inflation might once again bring in inflows. However stock market onslaught will help to underpin the USD. Range likely 39.50 – 40.50.

EUR = Prospects of further interest rate cuts in the next FOMC will keep USD under pressure. Whereas higher EUR might not get favour from the ECB. Overall feel a sideways movement with a slight corrective trend and occasional blips for the next fortnight.

GBP = Range trading expected with an initial downward trend. Cross related correction might help GBP to strengthen but overall bearish trend persists.

JPY = Japanese investors higher appetite for US assets might keep USD bid for some time and we may see some more weakening of JPY. However, any news on the credit front will dilute this scenario.

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

FCNR (B) DEPOSITS (w.e.f. 01.04.2008)						NRE(w.e.f.01.04.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	1.74	5.09	3.98	2.80	7.33	2.49
2 Years & above but less than 3 years	1.75	4.39	3.50	2.45	6.59	2.50
3 Years & above but less than 4 years	2.06	4.33	3.43	2.66	6.51	2.81
4 Years & above but less than 5 years	2.36	4.30	3.42	2.81	6.57	2.81
5 years only	2.65	4.28	3.43	2.94	6.55	2.81
SB NRE - 3.50 % at par with domestic savings deposit

 

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