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

News Items

> Bank Rate, Repo Rate and Reverse Repo Rate kept unchanged.

> The flexibility to conduct overnight repo or longer term repo including the right to accept or reject tender(s) under the LAF, wholly or partially, is retained.

> CRR increased by 50 basis points to 7.5 per cent effective fortnight beginning November 10, 2007.

> GDP growth forecast retained at 8.5 per cent during 2007-08, assuming no further escalation in international crude prices and barring domestic or external shocks

> Inflation to be contained close to 5.0 per cent during 2007-08 while resolving to condition expectations in the range of 4.0-4.5 per cent, with a medium-term objective of inflation at around 3.0 per cent.

> Moderating net capital flows so that money supply is not persistently out of alignment with indicative projection of 17.0-17.5 per cent.

> Covering of 'Short-sale' and 'When Issued' transactions to be permitted outside the Negotiated Dealing System - Order Matching (NDS-OM) system.

> Systemically important non-deposit taking NBFCs (NBFC-ND-SI) to be considered as 'qualified entities' for accessing the NDS-OM using the Constituents' Subsidiary General Ledger (CSGL) route.

> Reinstatement of the eligible limits under the past performance route for hedging facility to be permitted.

> Oil companies to be permitted to hedge foreign exchange exposures by using overseas over-the-counter (OTC)/ exchange traded derivatives up to a maximum of one year forward.

> Importers and exporters having foreign currency exposures to be allowed to write covered call and put options in both foreign currency/ rupee and cross currency and receive premia.

> Authorised Dealers (ADs) to be permitted to run cross currency options books subject to the Reserve Bank's approval.

> ADs to be permitted to offer American options as well.

> Working Group to be constituted for preparing a road-map for migration to core banking solutions (CBS) by Regional Rural Banks (RRBs).

> RRBs and State/ Central Cooperative Banks to disclose their capital-to-risk weighted assets ratio (CRAR) as on March 31, 2008 in their balance sheets.

> High Level Committee to be constituted to review the Lead Bank Scheme.

> Financial assistance to RRBs for implementing information and communication technology (ICT) based solutions.

> Working group to be constituted to lay down the road-map for cross-border supervision and supervisory cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision (BCBS).

> Besides general market risk, specific risk, especially the credit risk arising out of deficient documentation or settlement risk to be covered under the supervisory process.

> Action plan to be drawn up for implementation of National Electronic Clearing Service (NECS) with centralised clearing and settlement at Mumbai.

(Source: RBI website)

Resident Indians may soon have a new instrument to hedge themselves against exchange rate fluctuations. A panel appointed by the Reserve Bank of India has recommended trading in currency futures on dedicated exchanges. A currency future is an exchange-traded derivative that allows investors to sell or buy a currency at a fixed price on a future date. To begin with, futures trading would be allowed only in dollar-rupee contracts.

The Indian rupee has appreciated by around 11 per cent against the dollar this calendar year. In the first phase, the panel recommends that only resident Indians should be permitted to trade in currency futures. Once appropriate surveillance, monitoring and reporting systems are set up, the committee recommends that FIIs and NRIs may be allowed to participate. The committee has suggested setting up of dedicated exchanges and settlement systems. Banks and ‘eligible brokers’ can be the members of the Exchange.

Two types of membership – hedgers and speculators - may be allowed. The responsibility of fixing margins for these categories may be left to the Exchanges. In terms of size, the group has suggested the introduction of a single contract of a notional value of $1000 and that currency futures maturing in the first 12 calendar months may be offered in line with the existing over-the-counter forward market. There may not be any quantitative restrictions on trading members.

The Group recommends that when residents outside India are permitted access to the currency futures market, they may be allowed membership as hedgers only. Participants may be allotted unique client indentification numbers.

The RBI would be the regulator and retain the right to stipulate or modify the participant-wise position limits or any other prudential limits in the interest of financial stability. Initially, the RBI panel has recommended a standardized product across various exchanges in terms of contract size, final settlement dates, settlement procedure of contracts and tenors of contracts. This would also discourage situations of unhealthy competition among the Exchange, the group said. It also proposes that settlement should be only on cash-basis, based on spot Reserve Bank reference rate on the expiry date.

The main advantage of currency futures over its closest substitute product – forwards that are traded over the counter – is the price transparency, elimination of counter-party credit risk and wider reach. “Globalisation and increased cross-border flow of funds have increased the exposure to market risk and hedging of such exposures has become critical. The need for introduction of currency futures has to be viewed in the context that wider hedging opportunities could strengthen economic agents’ ability to cope with market-induced currency movements,” the panel said.

( Source: Businessline)

CHEAPER FOOD ITEMS PEG INFLATION RATE LOWER

The annual Wholesale Price Index-based rate of inflation declined to 3.01 per cent for the week ended November 10 against 3.11 per cent the previous week, mainly due to fall in prices of some food articles. The wholesale price based inflation stood at 5.39 per cent a year ago. The Wholesale Price Index of all commodities also dropped to 215.4 points from 215.6 points a week ago.

( Source: Businessline)

FOREX RESERVES RISE $967 m

The country’s forex reserves increased by $967 million to touch $271.148 billion for the week ended November 16, as per figures released by the RBI. The forex reserves had increased by $3.663 billion to touch $270.181 billion in the previous week. Foreign currency assets increased by $978 million to touch $262.901 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 net inflows from FIIs were to the tune of 238.4 million, according to figures from SEBI.

( Source: Businessline)

PANEL MOOTS FAST TRACK COURTS FOR LOAN DEFAULT DISPUTES

Banks may have access to a new means of loan recovery if the recommendations of a working group appointed by the Indian Banks’ Association are accepted by the RBI and the Government. The IBA’s suggestions include setting up of fast track courts on the lines of a ‘Lok Adalat’ to facilitate the speedy recovery of loans and repossession of property within the existing legal framework. “What is missing in our country is the presence of some special courts, which can deal with such cases expeditiously. There is a need to create such infrastructure so that there is some legal recourse for such problems,” said Mr H N Sinor, Chief Executive, Indian Banks’ Association. The working group will submit its recommendations in the next 15 days, he added.

( Source: Businessline)

RBI WILL TAKE NECESSARY STEPS FOR PRICE STABILITY

Concerned over rising oil and food prices in the global market, the Reserve Bank said it would adopt all necessary monetary measures to maintain price stability in the country. “RBI’s main objective remains price stability, financial stability and maintenance of high growth through adequate provision of credit. We will use all monetary instruments as and when necessary”, RBI Deputy Governor Mr Rakesh Mohan said.

The Food and Agriculture Organisation (FAO) of the United Nations has predicted that food prices would be rising at a higher rate in the next 5-10 years than in the past, adversely impacting those economies that have higher weight of food items in price levels. In India, food items account for 57 per cent in Consumer Price Index and 26.94 per cent (primary and manufactured products) in the Wholesale Price Index that is used to measure inflation. The RBI was ready to use all instruments - MSS (used to suck out liquidity through sale, purchase of government securities), liquidity adjustment facility and cash reserve ratio – depending on the situation.

( Source: Businessline)

INR = Sub-prime losses to some extent affected our bourse as FII turned sellers and booked profits to minimise the impact of such losses. Range expected 39.20 – 39.95.

EUR = Euro looks bullish although ECB officials’ concern has given temporary respite to USD. Range expected 1.4985 – 1.4660. Buying on dips favoured.

GBP = BOE Governor’s statement post BOE minutes on 21st instant has stopped GBP’s run and made the currency bearish against EUR. Range expected 2.0435 – 2.0790 with not so clear trend.

JPY = JPY looks bearish as risk aversion persists which led to unwinding of carry trades. Range expected 107.30 to 110.20 Selling on rally favoured.

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. 01.12.2007)						NRE(w.e.f.01.12.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	3.71	5.30	3.94	3.98	6.95	4.46
2 Years & above but less than 3 years	3.19	4.77	3.67	3.44	6.67	3.94
3 Years & above but less than 4 years	3.25	4.66	3.64	3.54	6.67	4.00
4 Years & above but less than 5 years	3.34	4.62	3.64	3.62	6.68	4.00
5 years only	3.44	4.56	3.65	3.68	6.60	4.00
SB NRE - 3.50 % at par with domestic savings deposit

 

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