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

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(02/07/2007 - 15/07/2007)

News Items

With the southwest monsoon turning out to be a normal one so far, sowing for the current kharif season is gradually picking up. According to the Agriculture Ministry's latest Crop Weather Watch report, a total area of 23.14 lakh hectares (lh) have been till now planted under rice, which is marginally lower than the 23.39 lh during the same period last year.

There is a similar lag in the case of coarse cereals (8.306 lh versus 13.577 lh), with these being 4.781 lh and 5.593 lh for maize, 0.686 lh and 4.357 lh for bajhra and 1.78 lh and 2.51 lh for jowar. Even for oilseeds, the cumulative acreage of 4.52 lh is below last year's corresponding level of 7.83 lh, while amounting to 2.53 lh and 3.97 lh for groundnut, 0.24 lh and 1.01 lh for soyabean, 0.81 lh and 1.58 lh for sunflower, 0.77 lh and 1.07 lh for sesamum and 0.17 lh and 0.18 lh for castor.

On the other hand, farmers have planted 15.29 lh under cotton so far, which is higher than last year's progressive area of 14.707 lh. Of the 15.29 lh, as much as 8.68 lh has been sown under Bt cotton, according to the report. Area under sugarcane and jute are, however, lower at 44.02 lh and 45.44 lh and 7.864 lh and 8.176 lh, respectively. The sowing lag is expected to reduce with the resurgence of monsoon activity over the last one week. During the week ended June 20, the country as a whole recorded an area weighted average rainfall of 51 mm, or a third more than the 'normal' (long period average) of 38.3 mm for the last week.

( Source: The Business Line)

Prices of most commodities could fall by 2008 as a broad rally in raw materials peaks but investments in the sector may grow an average $60 billion a year, JP Morgan said in a research note. Except for gold and palladium, prices of other precious metals, as well as commodities such as oil, base metals and grains, are expected to be lower by the second quarter of next year compared with now, the note said.

But even after such decline, prices are expected to be about 150 per cent higher than the levels seen in the late 1990s, thanks to explosive demand from emerging markets as well as developing giants like China. Total investments allocated to commodities was also expected to expand by about $300 billion over the next five years from the current approximate of $100 billion. The report said the top 10 consumers of oil now included the core of emerging market countries such as China, Russia, India and Brazil. Petrodollars made the single biggest contribution to global liquidity over the last two years with an estimated $872 billion, JP Morgan said.

( Source: The Business Line)

STEEL MILLS BRACE FOR MORE HIKES IN IRON ORE PRICES

The world's steel makers may be in for another year of hefty price rises for iron ore, thanks in large part to China's booming industrial sector. Analysts predict that the prices mining companies charge steel mills for iron ore will rise as much as 20 per cent in the next shipping year starting April 1, 2008, which would mark the sixth straight year of increases.

Demand remains robust with 20 per cent year-on-year growth in China's steel production in the first five months of this year. As such, a 20 per cent increase in 2008-09 prices is forecast by Citigroup. The value of iron ore exports from Australia alone is expected to grow by nearly 30 per cent to $17.4 billion ($14.7 billion) in fiscal 2007, according to the Australian Bureau of Agricultural and Resource Economics. Australia's iron production is expected to increase 13.3 per cent to 305.2 million tones over the same period

( Source: The Business Line)

OECD plays down emerging markets sell-off risk

The head of the Organisation for Economic Co-operation and Development (OECD) Mr Angel Gurria, said that he did not believe there was a risk of an emerging markets sell-off due to global monetary tightening. Emerging markets have been hit by expectations that US interest rates will not fall soon or may even rise further. Weak stock markets, due partly to concerns about the exposure of US lenders to sub-prime mortgages, have also reduced investor interest in risky assets around the world. Mr Gurria said that the fiscal position, debit position, the FX position, the reserve position was a lot better than it has ever been in terms of stability in all these emerging economies. Recent sharp falls on the Shanghai stock exchange and the sub-prime mortgages concerns had not caused a wide global sell-off and instead showed that markets had readjusted. When asked whether the problem of defaults in the US sub-prime markets would have an adverse impact on the broader US economy and financial markets, Mr Gurria said it was part of the process of the system taking care of itself.

( Source: The Business Line)

Emerging market bank profits may outgrow G7's

Bank profits from 7 of the biggest emerging markets could outstrip the sector's profits from the current 7 leading industrial nations by 2050. Accountancy firm Pricewaterhouse Coopers (PwC) said domestic credit in China alone could overtake Britain and Germany by 2010, Japan by 2025 and the US by 2050, while India could be the third biggest domestic banking market by 2040.

The report compared the "E7" emerging markets of China, India, Brazil, Russia, Indonesia, Mexico and Turkey with the established G7 economies.

( Source: The Business Line)

INR = INR looks strong as inflows are heavy and USD weakness against all currencies are imminent. Keeping in view RBI support, INR should trade in the range of 40.20 to 41.10.

EUR = EUR looks rangy to bullish as positive upmove is in progress. Rate expected 1.3350 to 1.3650. Against INR, rate likely 54.20 - 55.80.

GBP = Interest rate hike expectation towards 6% has pushed GBP firmly above the crucial level of 2.000. Range now 1.9880 to 2.0250. Against INR, rate will be between 80.90 to 82.90.

JPY = Risk aversion and lower yields have kept JPY weak. Resumption of carry trade and overall USD weakness will keep JPY in the range of 122.10 to 124.25. JPY/INR likely to move between 32.70 to 33.70.

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. 01.07.2007)						NRE(w.e.f.01.07.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	4.68	5.57	3.78	4.10	6.02	5.43
2 Years & above but less than 3 years	4.68	5.55	3.96	4.19	6.06	5.43
3 Years & above but less than 4 years	4.71	5.56	4.00	4.25	6.14	5.46
4 Years & above but less than 5 years	4.75	5.52	4.01	4.29	6.22	5.46
5 years only	4.79	5.47	4.03	4.31	6.22	5.46
SB NRE - 3.50 % at par with domestic savings deposit

 

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