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

Currency Outlook

The USD/INR moved higher during the last fortnight from 45.35 levels to highs of 46.56 before closing the fortnight at 46.35 / 36. The higher move was mainly due to stock market woes as FIIs withdrew USD 2.4 billion in May 06 alone due to a meltdown in emerging markets and uncertainties about US interest rate outlook. The up move in USD/INR was to some extent tempered due to reported dollar sales by state run Banks and supplies from exporters. Forwards were received due to cash dollar shortage and exporter covering. Six months closed the fortnight at 0.40 %.

During the ensuing fortnight we expect USD/INR to be supported at 46.00 for a try again higher to 46.55 levels. Six-month forwards are expected to trade in a range of 0.30 % and 0.60 %.

Euro consolidated against USD in the range of 1.27 - 1.2920 last fortnight, as market evaluated out-coming economic data from US for signals about interest rate outlook. Inflation continues to worry US policy makers as it hovers around 2 %. The US quarter one GDP growth was robust at 5.3 %, which may provide some room to Fed in hiking rates. However the time lag of the monetary policy effects on the economy is a worrying factor. Market prices a 50:50 chance of a rate hike.

In the ensuing fortnight we expect EUR to continue consolidation in the range of 1.2680 - 1.29 before the Fed provides directions at its meet on 29th June.

GBP sustained losses against USD from 1.9022 to 1.8570 levels as the MPC April minutes showed it divided about rate decisions with 3 members calling for maintaining status quo. A fall in UK retail sales and lower new mortgage approvals also took their toll.

In the ensuing fortnight, we expect GBP to get capped at 1.8880 levels for a move down to 1.8430.

Last fortnight witnessed Yen give up its gains as the USD moved higher from 109.70 levels to 112.94 highs before closing at 112.58. Markets seem to be disappointed, as BOJ does not discuss about any rate hike at its last meeting. Higher Oil prices too remain a concern.

In the ensuing fortnight we expect JPY to move to 113.75 levels. Support comes in at 111.70.

Other News Items

Cotton exports in marketing year (MY) (Aug to Jul ) 2006 - 07 are forecast to increase to 3.5 million bales as a fall out of large carry over stocks and expected higher production, assuming the current parity of local cotton prices vis-à-vis international prices holds. India has emerged as a significant exporter of cotton in MY 2005 - 06 ( August-July) and is estimated to have exported 3.2 million bales.

A report by Global Agriculture Information Network (GAIN) stated in addition to the large carryover stocks and near record production, firm international prices during most of MY 2005 / 06 helped export prospects. Based on official data for the first six months of the fiscal year (FY) 2005 - 06 (Apr-Mar) are estimated to increase by about 14 % over the FY 2004 - 05 level of USD 3.4 billion. Exports of readymade garments (mostly cotton based) are expected to grow 34 % over the FY 2004/ 05 exports of USD 6.2 billion.

India's competitiveness in the post - Multi Fiber Agreement (MFA) quota system will likely fuel double-digit growth in cotton textile exports, which should allow it to capture an increasing share of the global textile trade over the next few years. India will be in the export market for the next 2 - 5 years, until domestic consumption catches up with the recent production surge. Most exports will be of medium-to-long staple cotton (25 to 32 mm length) to neighboring countries, china and various Far East destinations.

(Courtesy: The Financial Express)

The Government of Singapore is looking at an investment of about USD 1 billion into the development of a Special Economic Zone possibly in joint venture (JV) with an Indian company, To be built over 2500 acre of land, the zone will be set up in any one of the states of West Bengal, Tamil Nadu, Andhra Pradesh and Gujarat.

The representatives of the Singapore government have recently submitted their proposal to the Ministry of Commerce and Industry and they are under talks about acquisition of land said Mr Gopal K Pillai, Special Secretary of the Ministry of Commerce and Industry . The SEZ could be built either directly by the Singapore government or in joint venture with state industrial development corporations.

The SEZ would be a multi product one where Singaporean and even Japanese companies would set up base with facilities for both including Japanese schools and restaurants.

The Commerce ministry is to consider the applications of 52 entities regarding setting up of SEZs in different states in its meeting scheduled in June. These includes 18 SEZs to be built over 1000 acre, 18 medium-sized ones, to be built over 100 acre each whereas the rest would be small about 25 acres, Mr Pillai said.

The existing SEZs are expecting a total export revenue of Rs 25,000 Crores in 2006 - 07, which would be about 15 % growth over the previous year.

The Government has recently approved a total of 67 SEZs of which 16 are operational. Most of the remaining ones are likely to be in operation in the next two - three years.

(Courtesy: The Economic Times)

India has moved up 10 notches to the 29th position, compared with 39th last year in the global competitive survey of 61 national and regional economies. Maharashtra is the only state to figure in the survey and has improved its position by bagging the 37th place against 41 last year.

World Competitiveness Yearbook '06 published by Switzerland based International Institute for Management Development (IMD), released last week, analyses and ranks the ability of nations to create and maintain an environment that sustains the competitiveness of enterprises. US has maintained its numero uno position but Hong Kong and Singapore seem to be catching up fast as their governments are more in synchronization with the economic performance. Finland and Denmark also fare well; others less.

The survey has calculated the differences between the contribution of the government and that of the economy to the overall competitiveness of a country. According to the survey, the governments of Venezuela, Argentina, Brazil, Mexico and Italy show weakest performance: they significantly lag behind their economic performance. They have failed to perform on several fronts like budget deficits, debt, taxes, bureaucracy etc. The survey also notes a striking difference between the achievements of the US economy in '05 that grew at 3.5 % and the US'$ 318 billion budget deficit accumulated by the federal government and the $ 8000 billion debt.

India and China face similar gaps between government and economic performance, but for different reasons. With growth rates of 8.1 % and 9.9 % respectively, both governments face the challenge of keeping pace with rapid economic expansion. They have the standards and expectations of a buoyant economy growing.

(Courtesy: The Economic Times)

FCNRD(w.e.f. 01.06.2006)						NRE(w.e.f. 01.06.2006)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	5.43	4.94	3.32	4.41	6.10	6.43
2 Years & above but less than 3 years	5.43	5.03	3.61	4.47	6.10	6.43
3 Years & above but less than 4 years	5.45	5.08	3.73	4.52	6.10	6.50
4 Years & above but less than 5 years	5.47	5.11	3.81	4.56	6.15	6.50
5 years only	5.51	5.10	3.88	4.61	6.16	6.50
SB NRE - 3.50 % at par with domestic savings deposit

 

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