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

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(01/10/2007 - 15/10/2007)

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 The second LAF, conducted between 3.00 p.m. and 3.45 p.m. on a daily basis, is withdrawn with effect from Monday, August 6, 2007.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)

Non-resident Indians are sending more money home. Individual remittances from Indians working overseas have surged 50% at $8.6 billion in the first quarter of 2007-08, against $5.9 billion in the year ago period, according to the Balance of Payment data released by the RBI. Economists believe that although the US has seen a slow down in economic growth, remittances may not have been hit. Regions such as West Asia and Europe, which are the other sources for remittances into India have shown strong growth.

Software exports in dollar terms have grown by 20 per cent at $8.441 billion ($7.039 billion). The sharp appreciation of the rupee in the first quarter has, however, meant that software exports were higher by just 8.7 per cent in rupee terms. Indians traveling abroad have been matching foreigners in dollar spends although in absolute terms they trail overseas visitors. Travel earnings in the first quarter have grown by 22 per cent to touch $2.088 billion while outgo is growing at 26 per cent at $1.881 billion.

Growth in non-merchandise transactions (Invisibles) has helped contain the country's current account deficit. Invisible receipts were up 27.5 per cent at $31.432 billion, against $24.643 billion. However, higher imports and a moderate growth in exports have slightly pushed up India's current account deficit to $4.697 billion in the first quarter of the fiscal 2006-07, against a deficit of $4.567 billion in the year ago period. The current account had registered a surplus in the fourth quarter of 2006-07 at $2.563 billion.

According to RBI data, India's trade deficit increased to $21.6 billion in the quarter ended June 30,2007 against $16.9 billion in the previous year. Non-oil imports have registered a strong growth of 47.4 per cent while oil imports were higher by only 8 per cent. The Indian basket of crude oil prices remained steady at $66.3 per barrel during Q1 of 2006-07, compared to $66.8 per barrel in the previous year.

( Source: Businessline)

RBI RAISES VIGIL LEVEL POST SUB-PRIME CRISIS

The Reserve Bank of India has enhanced its daily vigilance in the wake of sub-prime crisis in the US and Europe, the Deputy Governor of RBI Dr Rakesh Mohan said on Friday. He added that the central bank has been able to maintain financial stability in the country. "The central banks from different countries are all engaged in understanding the risks. All of us are watching the situation. We have enhanced our daily vigilance to respond to prevailing uncertainties in the global financial markets', he said.

Dr Mohan said the factor responsible for the sub-prime crisis was very low level of inflation in many parts of the world for a very long time which resulted in lower interest rates. But that increased the appetite for taking increased risks. The lowering of real interest rates enhanced the appetite for risk even as pricing of risk has become increasingly difficult. Dr Mohan also said that repeated assurances of stability and guidance to markets by the central banks about the future path of interest rates, coupled with the availability of ample liquidity was an invitation to markets to underprice risks, which the Reseve Bank of India never does.

( Source: Businessline)

FOREX RESERVES RISE $3.7 BILLION

The forex reserves surged by $3.704 billion to touch $235.891 billion for the week ended September 21, due to currency revaluation and the central bank's buying of dollars to stem the appreciation in the rupee. In the earlier week, the forex reserves had increased by $1.810 billion to touch $232.187 billion. This is the third week in a row that forex reserves have shown an accretion.

As per the Weekly Statistical Supplement of the RBI, the foreign currency assets rose by $3.702 billion to touch $228.572 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-US currencies (euro,sterling and yen) held in reserves. The gold and SDRs were unchanged at $6.881 billion and $2 million respectively. The country's reserve position in IMF went up by $2 million to touch $436 million for the same period.

( Source: Businessline)

WHOLESALE PRICE INDEX -BASED INFLATION 3.23%

The annual Wholesale Price Index-based inflation rose 3.23 per cent during the week ended September 15, lower than previous week's annual rise of 3.32 per cent. The dip in the year-on-year inflation rate to its lowest levels since December 21, 2002, was mainly on account of a fall in prices of food items such as fruits, sugar, egg, fish, meat and a few manufactured items, besides the effect of last year's high base, Government data showed on Friday.

This is the fifth straight week that inflation has been below four per cent and the 15th week it has been under 5 per cent, the RBI's target for the current fiscal. The annual rate of inflation stood at 5.27 per cent during the corresponding week a year ago. During the latest reported week, the WPI for all commodities declined 0.1 per cent to 214.4 points, from 214.7 points for the previous week.

( Source: Businessline)

GOLD HITS 28 YEAR HIGH

Gold hit a 28-year high on 28th Sep boosted by an ailing dollar and firmer oil prices, while platinum reached a 10-month peak and looked to test an all-time record. Spot gold rose as high as $739.65 an ounce, its highest level since January 1980 when the metal rose to $850, and was quoted at $737.90/738.70. Platinum continued to advance on investor buying and positive fundamentals, hitting a 10-month high of $1,363/$1,367 an ounce.

( Source: Businessline)

INR = INR has entered firmly into the bullish domain. Stock market inflows and USD weakness will help it to consolidate it's gains in the coming fortnight. Political events and RBI intervention/policy measures to ack as checks. Range likely 39.20 to 40.20.

EUR = USD weakness due to the expectation of further rate cuts has brought Euro into limelight, although European policy makers are crying out of the fear of losing export competitiveness. Range expected for the ensuing fortnight 1.4150 - 1.4430. Against INR range likely 56.00 -57.25.

GBP = GBP has come off the uncertainty prevailing in the financial market and is once again on the rising path. Range expected 2.0330 - 2.0700 for the ensuing fortnight. Against INR likely range 80.75 - 82.25.

JPY = USD weakness on one hand and carry-trade on the other will keep JPY within a range with slight strengthening bias in the short term. Range for the coming fortnight likely to remain within 112.50 - 115.50. Against INR range likely 34.00 - 35.20.

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. 01.10.2007)						NRE(w.e.f.01.10.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	4.15	5.44	3.98	4.13	6.47	4.90
2 Years & above but less than 3 years	3.84	5.02	3.79	3.87	6.21	4.59
3 Years & above but less than 4 years	3.89	4.94	3.77	3.93	6.21	4.64
4 Years & above but less than 5 years	3.99	4.90	3.78	3.97	6.26	4.64
5 years only	4.08	4.87	3.80	3.99	6.23	4.64
SB NRE - 3.50 % at par with domestic savings deposit

 

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