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

(14/07/2007 - 31/07/2007)

News Items

The Government unveiled a relief package for exporters with special focus on sectors that have been affected most by rupee appreciation.

The Finance Ministry's package essentially comprises three components - interest relief on export credit, increase in the duty drawback rates in nearly all items and an administrative action to enable the Commerce Ministry to expeditiously settle deemed export benefit reimbursement claims. The Government has been especially sympathetic to sectors that are less import intensive and are unable to take advantage of cheaper imported inputs, but have high value addition possibilities.

All exporters in nine identified sectors would get 2 percentage point interest relief on both post-shipment as well as pre-shipment credit. The subvention would be provided by the Government to the banks through the Reserve Bank of India. The nine sectors are textile (including handloom), readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys. Also, all exporters from the small and medium enterprises (even those outside the identified nine sectors) would be entitled for the 2 percentage point subvention on pre-shipment credit up to 180 days, as well as post shipment credit up to 90 days for the period April-December 2007. The 2 percentage point subvention would in all cost about Rs 500 crore to the exchequer.

The Finance Ministry has worked out the revised All Industry duty drawback rates for 2007-08 and would be notified shortly. He said that the drawback rates have been increased in nearly all products and the increased rate of drawback would take effeclt from April 1 this year. Additional lines have been drawn in the drawback schedule. These include leather-cum-synthetic textile, footwear upper, coir mats, handicrafts/artware of stainless steel and certain dye and dye intermediates. The Finance Ministry has relaxed the monthly and quarterly ceiling on expenditure, thereby enabling the Commerce Ministry to meet in full the pending reimbursement claims to the tune of about Rs 600 crore in respect of deemed export benefits.

( Source: Businessline)

Moody's rating agency has given stable outlook for India's banking industry, stating that the rating is driven by relatively solid financial metrics amid a benign operating environment conducive to credit growth. In its banking system outlook on India, Moody's Investor Service said the stable rating outlook for Indian banks reflects the country's robust credit growth against the backdrop of a favourable economic mileu, as well as improvements in the banks' overall financial metrics and strong deposit franchises.

Moody's said there is scope for consolidation in India's relatively crowded and fragmented banking system, which is likely to increase as competition intensifies. It further said the Indian economy continues its growth trajectory with GDP growing at 9.4 per cent during the fiscal year ended March 2007. This robust macroeconomic environment continues to bolster the financial performance of Indian banks, which are faced with a broad-based credit demand, with the industrial sector having picked up and the corporate sector showing increased credit appetite, together with robust growth in retail loans and in mortgages in particular.

Other positive features for the Indian banking system include the strong liquidity across the system on the back of stringent prudential norms, as well as improved credit risk profile with a declining level of non-performing loans. The PSBs' robust deposit franchise is a core rating driver, even as the banks are increasingly tapping the capital markets to raise resources, as deposits are growing at a slower pace than loans.

( Source: Businessline)

11th PLAN: MORE FUNDS SOUGHT FOR COMMODITY BOARDS

The Commerce Ministry is pitching for higher allocation of funds to important commodity boards to undertake promotion and marketing efforts of these bodies during the 11th Plan (2007-12) at Rs 3930 crore, against the 10th Plan allocation of Rs 1715 crore. This comprises of Rs 1000 crore for Tea Board, Rs 580 crore for Rubber Board, Rs 750 crore for Coffee Board, Rs 350 crore for Spices Board, Rs 750 crore for Agricultural and Processed Food Products' Export Development Authority and Rs 500 crore for Marine Products Export Development Authority.

The higher allocation was on account of sustaining the higher export receipts of these sectors in the last fiscal. Moreover, with non-tariff barriers cropping up everywhere, the need for beefing up indigenous support infrastructure in terms of testing facilities and other amenities such as processing of the produce for value-addition also entails higher outlays in order to realise reasonably solid outcome.

( Source: Businessline)

LITTLE THREAT TO ASIA FROM US SUBPRIME: MOODY'S

The subprime mortgage debt crisis will have little impact on the US or Asian economies because that loan market is relatively small and would not create a ripple effect, Moody's Investors Service said on Wednesday. " At this point we don't think this will have anything but a marginal effect on the US economy and so therefore even less on the Asian economies. The dollar amount is not very big and a fairly small amount of the total US financial market", the agency said. It further added that Asian financial institutions were sitting on piles of cash as exports from the region boomed while their lending was not as brisk - were quite conservative in their investments. Asian banks tend to invest in highly rated instruments - AAA or AA instruments. While some of them did invest in AA- or Baa rated assets, they did not invest in non-investment grade securities, the agency said.

The impact on the US economy was also likely to be small. Subprime mortgages are a small part of US mortgages, which are a small part of the total debt in the US. This is not a huge problem, the agency added.

( Source: Businessline)

INR = INR looks strong as inflows are heavy and USD weakness against all currencies persists. Keeping in view RBI support, INR should trade in the range of 40.00 to 40.80.

EUR = EUR looks very strong agst USD as it scales further heights. Waning rate hike possibilities for USD weighing heavy on USD. Range expected 1.3620 to 1.3900. Against INR rate likely 54.80 to 56.50.

GBP = Interest rate hike expectation towards 6% and overall USD weakness has put GBP in driver's seat. Range now 2.0200 to 2.0550. Against INR, rate will be between 81.50 to 83.50.

JPY = Gain in US stocks has put pressure on JPY but carry trade factor will not allow it to trade much below. Range expected 120.80 to 123.00. Agst INR range likely 32.40 to 33.60.

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. 01.08.2007)						NRE(w.e.f.01.07.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	4.50	5.54	3.79	4.14	6.14	5.25
2 Years & above but less than 3 years	4.42	5.46	3.90	4.23	6.17	5.17
3 Years & above but less than 4 years	4.46	5.45	3.92	4.29	6.20	5.21
4 Years & above but less than 5 years	4.54	5.42	3.93	4.33	6.25	5.21
5 years only	4.61	5.37	3.94	4.36	6.23	5.21
SB NRE - 3.50 % at par with domestic savings deposit

 

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