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

Currency Outlook

The USD/INR dipped opened the fortnight at 45.95 and moved higher to 46.50 as
global geopolitical tensions mounted and oil crosses USD 78. Uncertainty US
interest rate outlook also weakened rupee as FII inflows to the stock market were
affected. Forwards witnessed range bound action between 0.98 % and 1.07 %.
We expect USD/INR to get supported to 46.15 levels for a move higher to try and
break the recent highs of 46.60 which would leave the way open for 47.15.
Forwards would be received on upticks with 6 months seeing a range of 0.85 % -
1.10 %.

Euro opened the fortnight at 1.2775 and moved higher to 1.2864 initially but later
moved down and closed the fortnight at 1.2650 levels. The move higher was
prompted by a lower than expected US Non Farm Payrolls Data. The euro was
also bid on Trichet’s comments about being vigilant on inflation. But Euro could
not hold to its gains which is a worrying factor.
In the ensuing fortnight we expect Euro to get topped out around 1.2820 for a
move down to 1.2530.
EUR/INR is expected to be in the range of 58.10 and 59.40

GBP traded a comparatively narrow range this fortnight opening at 1.8467 and
trading a range of 1.8340 – 1.8525 before closing at 1.8385. MPC kept rates
steady fretting about financial market turbulence. However higher inflation would
keep the policy markets worried as already evident from the warning of Merwyn King, Governor of BOE, Two new members Tim Besley and Andrew Sentance joined MPC.
In the coming fortnight, 1.8525 is expected to cap GBP for a move down to 1.8325 and lower,
GBP/INR is expected to trade a range of 83.30 and 85.50

JPY opened the fortnight around 114.35 and traded a range of 113.35 – 116.40
before closing at 116.15. Though Bank of Japan hiked the overnight call rate from
zero to 0.25 %, the call of Ministry of Finance officials for BOJ to be
accommodative in its monetary policy has cast some doubts on further rate hikes.
These comments coupled with a higher oil saw yen close higher.

We expect USD / JPY to get supported at 115.50 for a move higher to test 116.75
a break of which would lead to further highs of 117.90.
JPY/INR is expected to trade a range of 39.30 and 40.20

Other News Items

In order to promote bio diesel, the Central Government proposes to provide a slew of
concessions. The Centre is actively considering exemption in customs duty on import of plant
and machinery required for bio diesel production, waiver in excise duty on indigenous plant and
machinery and extending research and development (R&D) tax incentives to bio diesel industry
as in the case of pharmaceuticals and offer tax holiday for bio diesel manufacturing units for a
minimum period of five years.
Morever, the Government is exploring an option of offering excise duty concession on the bio
diesel blended diesel on the lines of earlier policy on gasoline-ethanol blends to offset the extra
cost incurred by oil companies.
It is proposed to produce bio diesel from non-edible tree borne oil seeds like Hatropha and
Karanjia. Sources said the proposed sops were necessitated in order to promote bio diesel and
thereby fulfill the gap between diesel and biodiesel price.
Various countries extend tax benefits to agriculture and industrial sector. In the US bio diesel tax incentive of 1 % of bio diesel blended petrol is provided. Similarly in UK, 20 pence peer litre
duty incentive for bio diesel is given. With India’s crude basket claiming to around USD 72
dollars per barrel, development of alternative energy sources gains significance.

(Courtesy: Financial Express)

Exports registered a record of 40.17 % growth in June 2006. According to the provisional data
released on Friday, exports during the month increased to USD 9.9 billion against USD 7.1
billion in the corresponding period last year. Imports during the month were USD 13.76 billion,
up 23.98 % over the corresponding period last year. This resulted in a trade deficit of USD 3.8
billion for the month against USD 3.99 billion during the corresponding period last year. The
increase has contributed to the robust growth in exports during the first quarter of this fiscal,
valued at USD 27.6 billion and 32.40 % higher than the exports in the same period last fiscal.
However total imports during April – June 2006 were USD 40.28 billion, 24.48 % higher than
the corresponding period last year. The trade deficit for April- June 2006 was estimated at USD
12.6 billion as against USD 11.45 billion during the same period last year.
Reacting to the latest export trends, Commerce and Industry Minister MR Kamal Nath
expressed confidence that India’s merchandise exports will hit USD 126 billion this year,
representing a doubling of exports within just three years which is something unprecedented any
where else.
In rupee terms, the exports during June 2006 were Rs. 45,905 crore, up from Rs 30.992 crore,
where as in April – June, exports were worth Rs 1,25,915 crore, 38.18 % higher than that of the
corresponding period last year. The imports in June 2006 were Rs 63,391 corre, 31 % higher
than the previous year. The imports were Rs 1.83,223 crore in April – June 2006, which is about
30 % higher than the level during the previous year. Oil imports during June 2006 were USD
4,817.6 million, 56 % higher than oil imports in the corresponding period last year. Oil Imports
during April – June 2006 were USD 13.12 billion, 39 % higher than oil exports in the corresponding last year. Non-oil imports during June 2006 was USD 8.94 billion, about 10 %
higher than the level of such imports in the same period last year. Non oil imports during April-
June 2006 was USD 27.15 billion, 9.6 % higher than the level of such imports in the
corresponding period last year.

(Courtesy: Financial Express)

MAURITIAN SOPS FOR INDIAN INVESTORS

The much awaited Indo-Mauritius Comprehensive Economic Cooperation and Partnership
Agreement (CEPA) will be ready by September. Under the CEPA, the two countries will engage
in cooperation not only in trade in goods, but also in investment, services and the general
economy. A joint working group is concurrently working on cooperation in seafood industry.
Mauritius has agreed to give various concessions to Indian investments in key sector like
education, tourism, IT and biotech in the investment chapter of the proposed pact. It is not clear, as to whether India’s reported proposal for a review of double taxation avoidance treaty would be part of the CEPA.
The discussions on Preferential Trade Agreement (PTA), a component of the CEPA, were at an
advanced stage and India had welcomed suggestions in other uncovered areas which could be
raised in subsequent meetings.
In a departure from the most favoured nation basis duty rates, Mauritius had agreed to give more market access for Indian wines, by permitting a 50 % concession on duty rates than the normal level. It had also agreed to reduce and / or phase out tariff rates for several other industrial and agricultural products. Under the FTA, Mauritius’ sugar and garment units will be given enhanced access to Indian markets through tariff lowering. India would allow Mauritius tariff rate quotas, under which the fixed quantities of textiles and sugar products from the island nation would get duty free access to Indian markets.

(Courtesy: Financial Express)

FCNRD(w.e.f. 01.08.2006)						NRE(w.e.f. 01.08.2006)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	5.54	5.04	3.55	4.44	6.42	6.54
2 Years & above but less than 3 years	5.44	5.08	3.76	4.46	6.37	6.44
3 Years & above but less than 4 years	5.42	5.11	3.84	4.51	6.39	6.42
4 Years & above but less than 5 years	5.43	5.12	3.90	4.55	6.44	6.42
5 years only	5.46	5.11	3.96	4.61	6.44	6.42
SB NRE - 3.50 % at par with domestic savings deposit

 

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