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

(16/08/2007 - 31/08/2007)

News Items

> Bank Rate kept unchanged.

> Reverse Repo Rate and Repo Rate under LAF kept unchanged.

> Withdrawal of the ceiling of Rs. 3,000 crore on daily reverse repo under the LAF with effect from Monday, August 6, 2007.
The Reserve Bank, however, retains the discretion to re-impose a ceiling as appropriate. The second LAF, conducted between 3.00 p.m. and 3.45 p.m. on a daily basis, is withdrawn with effect from Monday, August 6, 2007.

> Cash Reserve Ratio to be increased by 50 basis points to 7.0 per cent with effect from the fortnight beginning August 4, 2007.

> GDP growth projection for 2007-08 retained at around 8.5 per cent, barring domestic or external shocks.

> Holding inflation within 5.0 per cent in 2007-08 assumes priority in the policy hierarchy, while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis.

> While non-food credit growth has decelerated, the acceleration in money supply and reserve money warrants an appropriate response.

> Recent financial market developments in India and potential uncertainties in global markets warrant a higher priority in the policy hierarchy for managing appropriate liquidity conditions at the current juncture.

> 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 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 that supports export and investment demand in the economy so as to enable continuation of the growth momentum.

* To re-emphasise credit quality and orderly conditions in financial markets for securing macroeconomic and, in particular, financial stability while simultaneously pursuing greater credit penetration and financial inclusion.

* To respond swiftly with all possible measures as appropriate to the evolving global and domestic situation impinging on inflation expectations, financial stability and the growth momentum.

(Source: RBI website)

The strength of the Public Sector banks lie in their large branch network and manpower and these should be leveraged to tap the potential of rural markets, said Ms Usha Thorat, Deputy Governor, Reserve Bank of India.

Delivering the keynote address at the "National Banking Conference and Research Seminar" on 'Managing Next Generation Banking' organized by Indian Bank as part of its centenary celebrations, Ms Thorat noted that the emergence of a 50 million-strong rural middle class provided a huge market to PSBs. She urged the banks to use information technology to tap into this rural market. Speaking at the seminar, Mr R Ravimohan, Managing Director and Country Head, Standard & Poor's, said that he did not believe that retail loans were risky. He noted that in the last five-odd years about 50-60 million jobs had been created. The newly employed are potential customers for banks - they want all kinds of loans. Expressing similar views, Dr K C Chakrabarty, Chairman and Managing Director, Punjab National Bank, observed that in the past 37 years, the rural Indian was not considered credit worthy. But today, technology has made it possible to include them in the financial sector.

( Source: Businessline)

EXCISE DUTY COLLECTIONS UP 2.1% IN JULY

The Centre's excise duty collections grew 2.1 per cent in July 2007 to Rs 9388 crore as compared with collection level of Rs 9193 crore in the same month last year. The 2.1 per cent year-on-year growth in July 2007 is the lowest so far this fiscal. In April-July 2007, excise duty collections grew 5.5 per cent to Rs 34,571 crore as compared with Rs 32,753 crore collected in the same period last year. Provisional figures available with the States show that revenues from items under value-added tax (VAT) grew about 24.6 per cent in April-June 2007.

Customs duty revenues of the Centre continue to be buoyant, with collections in April-July 2007 up by 19.1 per cent to Rs 31,485 crore (Rs 26,742 crore). In July 2007, revenues grew by 16.8 per cent to Rs 8,253 crore (Rs 7065 crore). Service tax collections of the Centre increased by 37.90 per cent during April-June 2007 to Rs 10,012 crore (Rs 7260 crore).

( Source: Businessline)

CAPITAL INVESTMENTS MAY TOP LAST YEAR'S LEVELS: RBI

Capital investments by Indian companies in the current fiscal could exceed last year's level, according to a study by the Reserve Bank of India. Indian corporates expect to spend Rs 1,48,207 crore in capital expenditure in the current fiscal in projects already appraised and sanctioned by banks and financial institutions. This is against the total investments of Rs 2,06,460 crore in 2006-07. However, RBI expects the shortfall of Rs 58,253 crore to be more than made good by new projects that will come up in the current year. With the economy slated to grow by 8.5 per cent, the RBI expects the incremental demand for goods and services to drive fresh investments in capacity.

The apex bank also sees a marked improvement in corporate profitability. The study said that the resultant strong balance sheets will encourage corporates, which are already operating at optimum capacity, to make fresh investments. Continued momentum in industrial production coupled with the buoyancy in export growth bodes well for investment demand.

The growth in capital spending has been steadily moving up since 2002-03, peaking in 2004-05 and slowing down in 2005-06. However, last year saw investments more than double, mainly on account of 88 large projects each with cost exceeding Rs 500 crore. These projects aggregated to Rs 2,01,365 crore, accounting for more than two-thirds of the total project investment. The infrastructure group, which included 37 IT parks and SEZ projects, accounted for the highest share of 35.9 percent of the total cost of projects, amounting to Rs 101,744 crore. Half of these investments was in power projects (Rs 51,451 crore), followed by nine telecom and eight roads and other projects

( Source: Businessline)

US FEDERAL RESERVE CUTS PRIMARY DISCOUNT RATE

The US Federal Reserve has cut by a half point the primary discount rate, which governs loans from the central banks to commercial banks as the downside risks to growth have increased "appreciably". The primary discount rate is one of the US central bank's monetary policy tools and provides a borrowing safety valve for qualifying institutional borrowers. The primary discount rate is now 5.75 per cent, one-half of a percentage point above the target for the federal funds rate, which is the Fed's benchmark short-term interest rate.

( Source: Businessline)

COTTON PRICES MAY BE STABLE ON HIGHER OUTPUT, EXPORTS

Huge spindle expansion during 2005 and 2006 has led to galloping raw cotton consumption among spinners in the country resulting in this year's cotton season witnessing very low stock-to-use ration of just 44 lakh bales, according to the Coimbatore Cotton Association. But the higher anticipated cotton production in 2007-08 (Oct-Sep) season, marked by a rise in acreage, and increased cotton shipments in the new season, would impart stability to cotton prices. The 2007-08 crop would be higher by 10 per cent with the trade projecting the crop size at 300-310 lakh bales as compared with 270 lakh bales during the current year. With Indian cotton increasingly considered as being contamination free, a higher volume of export of raw cotton is anticipated in the coming season.

( Source: Businessline)

INR = The sub-prime fiasco and consequent default by mutual funds and credit squeeze in US has reversed INR's strengthening trend. Besides the US-India nuclear deal has brought turmoil in the political scenario which might pressurise INR. However, feel it is not the end of our growth story. Range expected 40.60 - 42.00.

EUR = EUR looks bearish. Although daily chart showing a reversal trend, still feel the selling pressure will keep EUR within a range of 1.3300 to 1.3600. Against INR rate likely 54.80 to 56.00.

GBP = GBP also looks bearish as carry trade unwinds. Range expected 1.9600 to 2.0020. Against INR rate likely 81.50 to 82.80..

JPY = JPY looks rangy to bearish. But carry trade might resurface which will weaken YEN. Range expected to 112.40 to 116.40. Against INR rate likely 35.70 to 36.90

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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