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)

A slew of measures to pep up export of traditional industries hit by the rupee appreciation, major spurs to cut down transaction costs, procedural simplification, extension of the popular duty neutralization DEPB (Duty Entitlement Pass Book) scheme till May 2009 and also a one-year extension beyond March 2009 in income-tax benefit to 100 per cent export units are outlined in the annual supplement to Foreign Trade Policy (FTA). Releasing the final year supplement to the FTA (2004-09), the Union Commerce and Industry Minister announced an export target of $200 billion for the current fiscal, against $155 billion export performance achieved in 2007-08.

He said the achievement fell short by $5 billion due to the effect of an appreciating rupee by more than 12 per cent against the dollar in 2007. If trade in services were added, India’s commercial engagement with the world would be $225 billion, he said. In order to achieve the export target, he announced tax refunds and interest subsidies to a spate of export segments that are labour-intensive in nature such as marine products, leather, textiles and handicrafts and 5 per cent additional duty credit for export of toys and sports goods. For agricultural products, additional duty credit of 2.5 per cent for export under Vishesk Krishi and Gram Udyog Yojana (VKGUY) is provided for export of certain flowers, vegetables and fruits.

While the customs duty payable under Export Promotion Capital goods (EPCG) Scheme has been cut from 5 per cent to 3 cent, average export obligation under the scheme for premier trading houses would be calculated based on the average of the last 5 years’ export instead of the extant 3 years. Alongside, reduced average export obligation under EPCG for sectors that have seen decline in exports in the previous year is also announced.

The Minister also declared that the country hoped on take a five per cent share of global trade by 2020, a four-fold spurt in the next 12 years and a growth rate of 25 per cent consistently in the years ahead. Other measures announced include treating of all electronic data interchange (EDI) ports as a single port, reduction in application fee for duty credit scrips and EPCG authorization, reduction of application fee for importer and exporter code and a joint task force to plan an integrated trade strategy to address structural problems to exporters.

EOUs would be allowed to pay excise duty on a monthly basis instead of consignment basis. To ensure that terminal excise duty and central sales tax refund is made on time, interest at 6 per cent a year is to be paid to the exporter where refund is not made within one month of the due date.

( Source: Businessline)

INFLATION SURGES TO 7.41%

With prices of vegetables, milk, edible oils, fuels and iron and steel rising, inflation spiked sharply to its highest levels since November 2004. The easing of concerns about the extent of a slow-down in the broader economy, amid the sustained upward spiral in price levels, increases the odds that the RBI might opt to tighten monetary policy when it holds a review at the end of the month. The annual Wholesale Price Index-based inflation rose 7.41% during the week up to March 29, up sharply from the previous week’s 7 per cent rise. During the latest week, wholesale prices in the iron and steel category were up a whopping 34 per cent on a year-on-year basis, while edible oil prices shot up 20 per cent.

Among essential items, cereal prices jumped 7 per cent, vegetables were up 16 per cent, while prices of both milk and spices spurted 8 per cent in the wholesale markets. Dairy products were up 9 per cent, while cement prices jumped 5 per cent. In the fuels category, both mineral oil and coal prices were up 9 per cent.

Adding to the series of measures already in place to curb rising prices, the Government announced a ban on cement exports, besides withdrawing export incentives for rice and primary steel items in the its new Foreign Trade Policy. The Government has already banned export of non-basmati rice, edible oils and pulses in an attempt to curb inflation. Responding to the latest inflation numbers, the Centre termed the rise in prices as a global phenomenon and said it was taking all possible steps to contain the rise.

( Source: Businessline )

INDUSTRIAL PRODUCTION GROWS 8.6% IN FEBRUARY

Industrial production grew 8.6 per cent this February from a year earlier, higher than January’s upwardly revised 5.8 per cent rise, according to IIP data. This, however, was lower than the 11 per cent recorded during the same month a year ago.

During the month, manufacturing clocked an 8.6 per cent growth, electricity generation was up 9.8 per cent while mining output was up 7.5 per cent. The strongest growth was in consumer non-durables which rose 11per cent from February a year ago, while momentum in the capital goods segment picked up, with a 10.4 per cent rise in output after January’s dismal 2.1 per cent (pre-revised). Consumer durables recorded 3.33 per cent growth.

( Source: Businessline )

NASSCOM UPBEAT ON IT GROWTH STORY

Software association NASSCOM indicated that the US credit crunch could lead to some slowdown in the growth rate of software and services sector, but exuded confidence that the IT industry would still notch in excess of 22 per cent growth rate required to meet the software export target of $60 billion in financial year 2010. “There could be some slowdown in growth, but the growth, per se, will happen. The target of $60 billion by 2010 will be maintained and achieved, as we go forward. Companies, however, are currently watchful on how severe the slowdown would be,” Mr Som Mittal, President of Nasscom, said at a conference to outline the association’s focus areas for FY-09.

( Source: Businessline )

INR = High inflation rates are bound to elicit appropriate policy initiatives from RBI in the annual policy and markets will try to price in these changes. Stock markets seem to be looking for directions and Rupee will react accordingly. High oil prices will also limit gains from exporters’ covering at higher levels. Range likely 39.50 – 40.20.

EUR = A further quarter per cent cut expected by Fed and the recent concerns of ECB on inflation will keep Euro bid for now. Overall feel a sideways movement with a bullish undertone but meets resistance at 1.5900. A breakout may be overdue.

GBP = Range trading expected with an initial downward trend. Historic highs in the EUR/GBP cross makes the pair very choppy. An eventual breakout of 0.8000 in the EUR/GBP will push cable down with 1.9350 in sight.

JPY = New year allocation from Japanese funds saw USD gaining some strength but rather weak sentiment in the global stocks fuels doubts of a fresh round of carry-trade unwinding. Need a lot of positive data from US to stem the rise of the Yen, or else, fresh levels could be tested.

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. 01.05.2008)						NRE(w.e.f.01.05.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	2.33	5.06	4.21	2.91	7.51	3.08
2 Years & above but less than 3 years	2.43	4.65	3.78	2.64	6.91	3.18
3 Years & above but less than 4 years	2.70	4.62	3.68	2.79	6.82	3.45
4 Years & above but less than 5 years	2.93	4.59	3.65	2.91	6.86	3.45
5 years only	3.11	4.54	3.64	3.03	6.78	3.45
SB NRE - 3.50 % at par with domestic savings deposit

 

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