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

(16/10/2007 - 31/10/2007)

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 The second LAF, conducted between 3.00 p.m. and 3.45 p.m. on a daily basis, is withdrawn with effect from Monday, August 6, 2007.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

The country's forex kitty swelled by $ 3.568 billion for the week ended October 5, on the back of continuous intervention by the Reserve Bank of India in the forex market. The forex reserves had surged by a whopping $ 11.871 billion to touch $ 247.762 billion for the week ended September 28, 2007, said the Weekly Statistical Supplement from RBI.

( Source: Businessline)

INFLATION RATE DROPS ON CHEAPER PULSES, EDIBLE OIL

The annual Wholesale Price Index-based inflation rose 3.26 per cent during the week ended September 29, lower than the previous week's annual rise of 3.42 per cent. The dip in the inflation rate, calculated on point-to-point basis, was mainly on account of a fall in prices of some food articles such as pulses and edible oils, besides some minerals. The annual inflation rate was 5.41 per cent during the corresponding week of the previous year. The Wholesale Price Index of all commodities increased to 226.4 points from 226.2 a week ago.

On a disaggregated basis, the Primary Articles' group index rose 0.1 per cent to 226.4 points, with the Food Articles group index rising 0.2 per cent. The Non-Food articles group index rose by 0.1 per cent to 211.7 points. The Minerals group index declined by 1.8 per cent to 429.8 points due to lower prices of barytes, iron ore and phosphorite. The Fuel, Power Light and Lubricants' group index remained unchanged at its previous week's level of 322 points. The Manufactured Products' group index rose 0.1 per cent to 187.4 points as the index for Food Products group rose by 0.1 per cent due to higher prices of gur and soyabean oil. However, the prices of coconut oil and gingelly oil declined.

According to the data, the final WPI index for the week ended August 4 stood revised at 213.8 points, as compared to the provisional estimate of 213.1 points, while the annual rate of inflation based on final index, calculated on point to point basis, stood at 4.39 per cent as compared to the provisional figure of 4.05 per cent.

( Source: Businessline)

BASEL PANEL WORKING ON RISK MANAGEMENT

The Basel Committee on Banking Supervision is confident that its ongoing initiatives would help address the types of issues and risks arising from the recent financial market turbulence. The Committee has said that it continues to assess the supervisory and risk management issues arising from recent financial market developments and, where appropriate, would consider supervisory responses that are pragmatic and proportionate.

Meanwhile, the Chairman of the Basel Committee on Banking Supervision, Mr Nout Wellink, who is also the President of the Netherlands Bank, has underscored the importance of implementing the Basel II capital framework, strengthening supervision and risk management practices in areas like liquidity risk, and improving the robustness of valuation practices and market transparency for complex and less liquid products.

The Basel committee members have agreed that Basel-II implementation would help make the capital base more relevant to banks' changing risk profiles and that the committee would closely monitor its impact. This framework is also expected to create incentives for better risk measurement and management, including for securitisation exposures and liquidity lines for asset-backed commercial paper programmes. The Basel Committee on Banking Supervision has been working to introduce new standards for banks to hold capital against the default risk associated with complex, less liquid credit product in the trading book.

( Source: Businessline)

ECONOMIC GROWTH COULD REACH A SUSTAINABLE 10%: OECD SURVEY

India's annual economic growth could reach a sustainable 10 per cent and be spread more evenly across the country if the Government pursues ambitious and wide-ranging reforms, the Organisation for Economic Cooperation and Development (OECD) has said in a survey.

"India is now the world's third largest economy behind the US and China, in terms of real prices and purchasing power. So, in this background, the Government's target of reaching the GDP growth of 10 per cent is achievable if reforms continue", the OECD said in its first economic survey on India. The survey has identified labour reforms, infrastructure, need for fully operationalising Competition Commission and a modern bankruptcy law, as the major challenges for the Government to sustain the growth rate.

( Source: Businessline)

GLOBAL ENERGY BODY CUTS Q4 OIL DEMAND FORECAST

World oil demand will grow more slowly than expected in the fourth quarter as record-high oil prices prompt some consumers to seek alternatives, the International Energy Agency(IEA) said on Thursday.

The IEA, advisor to industrialized countries, said in its monthly Oil Market Report that demand will rise by 2.03 million barrels per day in the fourth quarter from a year ago, 320,000 bpd less than previously expected. The report said that there has been a bit of substitution going on, natural gas for oil, which is essentially a price effect, coupled with some small downward adjustment to economic growth, which have played a role. OPEC is set to raise output in November, a move that followed months of pressure from the Paris-based IEA, which has been worried about the impact of record oil prices above $80 a barrel on consumers.

( Source: Businessline)

INR = At last, Govt has started worrying about INR appreciation. We feel some control on stock inflows on the anvil. Range expected 38.80 - 39.80 for the ensuing fortnight.

EUR = Euro also looks rangy with a soft tone as expectations of immediate USD rate cut reduced on one hand, and ECB officials worry on excessive Euro strength on the other. Range likely 1.3950 - 1.4300 for the fortnight.

GBP = GBP looks rangy with a soft tone as US economy data suggesting there may not be an immediate rate cut. On the other side, lure of carry trade might keep GBP bid. Overall range expected 2.0220 - 2.0500 for the fortnight.

JPY = Maintaining interest rate at the lowest level and resurfacing of carry trade has brought Yen on a weakening path. Range expected 116.00 - 119.00 for the fortnight with an upward bias.

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. 01.11.2007)						NRE(w.e.f.01.11.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	3.89	5.40	3.86	4.01	6.74	4.64
2 Years & above but less than 3 years	3.71	5.02	3.78	3.79	6.57	4.46
3 Years & above but less than 4 years	3.78	4.96	3.75	3.86	6.57	4.53
4 Years & above but less than 5 years	3.88	4.90	3.74	3.90	6.58	4.53
5 years only	3.97	4.85	3.75	3.93	6.51	4.53
SB NRE - 3.50 % at par with domestic savings deposit

 

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