INDIAN BANK
HO/INTERNATIONAL DIVISION
66 Rajaji Salai,
Chennai - 600 001
Website : www.indian-bank.com
FOREX
NEWSLETTER
(FORTNIGHTLY)
Currency Outlook
US Dollar traded between 45.91 and 45.38 during the past fortnight. Rupee has been initially weakening in the past fortnight on higher oil prices and inflationary pressures. The dollar flows from Foreign funds for the NTPC IPO and some portfolio flows coupled with a reduction in oil prices saw the rupee strengthen substantially to 45.38 levels on end October 04. The election scenario in the US and a widening trade gap are also some of the factors causing the dollar slide. For the ensuing fortnight expect the USD/INR to trade a range of 45.25/45.60.
Forward premia might track the spot rupee movements and trade in a range of 2.20% - 2.70%. in the upcoming fortnight.
Dollar continues to remain bearish in the international markets on account of a host of factors, widening trade gap, less than expected GDP numbers released on 29/10/04, rate hike in China, US elections. Euro to trade a range of 1.2650/1.2970 during the ensuing fortnight. Support exists at 1.2700. Initial resistance seen at 1.2840 and any break thereof might lead to 1.2900 and an ultimate target of 1.2960.
Against the Indian rupee the Euro is expected to trade between 57.35 and 59.00.
GBP is expected to trade in the range of 1.8200 - 1.8500 in the upcoming fortnight. Support exists for the GBP at 1.8250. Break thereof might test 1.8200 levels. Else the uptrend seems in tact with resistance seen at 1.8450.
Against rupee the sterling is expected to trade between 82..40 and 84.40.
Rate hike by 27 bps to 5.88% in China after 9 years sent mixed signals of a revaluation of Chinese Currency and hurt dollar badly. This has led to the Yen strengthen against the dollar. USD/JPY poised at crucial levels with Bank of Japan seeing appropriate levels for intervention in FX markets if needed. USD/JPY to trade a range of 105.25/108.50 in the current fortnight.
Against the rupee the Jap.Yen is expected to trade between 41.70/43.50
Other News Items
The long awaited new Generalised System of Preferences (GSP) from the European Union (EU) was announced late last week. It is a foreign policy document for the EU which uses the trade route to persuade its trade partners in the developing countries to accept global protocols ranging from environment to labour standards and human rights to get tariff free access to EU Markets. The new rules would be applied from January 2006 and are a broad reorganization of the system by which the EU grants trade preferences to developing countries. (Source -FinExp.dt.28/10/04)
With Phasing out of the Multi-Fibre Agreement (MFA) by next January, India's share in world's textiles and garments export is poised to reach 8% by 2010 from the present 3.9%. Textile and garment export from India is projected to become a $50 billion sector from around $15 billion presently. The total global trade in textile and garments during the same period is projected to grow to about $655 billion up from $400 billion now. (Source - Economic Times dt. 18.10.2004).
In an attempt to create awareness among the US textile importing community about the capabilities of the Indian cotton textile industry, the Cotton Textiles Export Promotion Council (Texprocil), has sent a high level delegation to the U.S. The Council also proposes to open an Office in New York early January 2005 so that the emerging opportunities for cotton textiles can be monitored closely and the partnership between the suppliers in India and buyers in the US can be strengthened, leading to higher level of trade and economic co-operation between the two countries. (Source - Financial Express dt. 27/10/2004).
The Reserve Bank of India announced mid term review of the Policy on 26th October 2004. The highlights of the Policy are listed below :-
a) Ceiling on interest rates on NRE Deposits raised by 50 bps over USD Libor/swap rates of corresponding maturities.
b) Banks may fix the ceiling on interest rates on FCNR (B) deposits on monthly basis.
c) Guarantee by Banks for trade credit liberalized. Accordingly Banks may issue guarantees/letters of comfort and letters of undertaking upto US $20 million per transaction for a period upto one year for import of all non-capital goods permissible under Foreign Trade Policy (except gold) and upto three years for import of capital goods subject to prudential guidelines.
d) Time limit for export realization relaxed for EOUs. Accordingly 100% EOUs and units set up under EHTPs, STPs and BTPs Schemes would be permitted to repatriate the full value of export proceeds within a period of twelve months.
e) Booking of forward contracts by exporters/importers relaxed. Accordingly limit for outstanding forward contracts booked by importers/exporters, based on their past performance have been increased to 100% from the present 50%. However the contracts booked in excess of 25% of the eligible limits would be on deliverable basis.
f) In order to review comprehensively the initiatives taken by RBI in the Forex market and to identify areas for further improvements an internal Group on Forex market was constituted.
(Source :- Economic times dt. 27.10.2004).
China has scrapped the ceiling on interest rates on Bank loans with effect from Friday, the 29th October 2004 thus adopting the market based mechanisms for fixing interest rates. The People's Bank of China has also increased one year Benchmark rate from 5.31% to 5.58%.
(Source - Reuters dt.29/10/2004)
FEMA Updates
Banks can now, in the ordinary course of business, issue guarantees in favour of foreign airline companies or IATA on behalf of IATA approved travel agents. In case of invocation of the guarantee, the bank should send a detailed report to Reserve Bank of India.
(A.P.(DIR Series) Circular No. 17 dt. October 16, 2004)
Banks can allow remittances towards hiring of transponders by TV Channels and Internet Service Providers, after obtaining the approval of the Ministries concerned (Ministry of Information and Broadcasting / Ministry of Communication and Information Technology) without reference to Reserve Bank.
(A.P.(DIR Series) Circular No.20 dated October 25, 2004)
Issue 1/2004 Dt.01 06 2004
Issue 2/2004 Dt.16 06 2004
Issue 3/2004 Dt.01 07 2004
Issue 4/2004 Dt.16 07 2004
Issue 5/2004 Dt.02 08 2004
Issue 6/2004 Dt.16 08 2004
Issue 7/2004 Dt.01 09 2004
Issue 8/2004 Dt.16 09 2004
Issue 9/2004 Dt.01 10 2004
Issue10/2004 Dt16 10 2004
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