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)

The Finance Ministry has expressed concern over the copious forex inflows into the country and the possibility of it 'endangering' growth and price stability. "The economy's capacity to absorb capital inflows has not risen as fast as the inflows. Increased capital inflows can impact macroenonomic aggregates through the exchange rate, trade and monetary variables," the Mid-Year Review 2007-08, tabled by the Finance Minister in Parliament has said.

In the face of sustained inflows and the inability to absorb the same, the foreign exchange market has been characterised by excess supply conditions. As in any other market, this has tended to reduce the rupee price of foreign exchange or an appreciation of the rupee. Between October 2007 and October 2006, the rupee has appreciated by 15.1 per cent against the dollar (the main invoicing currency for trade).

To moderate rupee appreciation, the Reserve Bank of India has had to buy up dollars, leading to a build-up of its forex reserves. But this, in turn, has led to injection of rupees into the system, necessitating calibrated sterilization through issue of bonds under the market stabilisation scheme (MSS). "The fiscal cost of sterilization, envisaged at Rs:3700 crore in the Budget Estimates of 2007-08, is now being supplemented with Rs:4500 crore ," the review has added.

( Source: Businessline)

INFLATION RATE AT 3.75 %

The annual Wholesale Price Index-based Inflation rose 3.75 per cent for the week ended December 1, higher than the previous week's annual rise of 3.01 per cent.

The dip in the year-on-year inflation rate was mainly on account of food items, particularly vegetables turning cheaper. The official WPI for all commodities for the latest reported week stood at 216.0 points. according to data released by the Ministry of Commerce and Industry.

( Source: Reuters )

FOREX RESERVES RISE $1.2 b

India's foreign exchange reserves rose to a record $273.553 billion on Dec 7 from $273.520 billion a week earlier, the Reserve Bank of India said in it's weekly statistical supplement. The foreign currency assets expressed in US dollar terms, included the effect of appreciation or depreciation of other currencies held in its reserves.

( Source: Reuters )

US IMPOSES 5-YEAR FREEZE ON MORTGAGE RATES

The US President announced a package imposing a five-year freeze on mortgage rates, which are scheduled to jump to often unaffordable levels as short-term "teaser" discounts expire. In a sign of the scale of the challenge facing the US economy, the Mortgage Bankers Association said 9,94,000 households were in the process of foreclosure. The association said a record 5.59 per cent of all mortgages were in default in the third quarter, up by 0.47 percentage points on the preceding three months.

The plan was agreed with the Hope Now Alliance, a coalition of banks, lenders and investors holding mortgage-backed securities. Only owner-occupiers will be eligible, to avoid aiding property speculators.

The initiative was a rare intervention for an administration with a hands-off philosophy towards the financial markets. The Treasury, Mr Henry Paulson, stressed that the plan involved no government money and would be introduced with a streamlining of the process of refinancing loan by mortgage firms.

( Source: Businessline)

RBI CAUTIONS PUBLIC AGAINST REMITTANCE FRAUDS

The Reserve Bank of India has cautioned people not to fall prey to fictitious offers for release of cheap funds claimed to have been remitted by overseas entities to banks in India or the RBI. The warning comes in the wake of international e-mail frauds and lottery scams, where people have lost money by believing unknown entities making claims of a lottery in store for the unsuspecting victim. Public should not make any remittance towards participation in such schemes or offers from unknown entities, an RBI note said.

It has also come to the notice of the RBI that certain overseas organisations have been advising individuals/companies and trusts in India that huge sums of money for disbursal of loans in India at cheap rates has been kept in an account with the RBI and the funds would be released after approval from the apex bank.

( Source: Businessline)

CRUDE STABLE; GOLD HOVERS AROUND $800

Crude oil traded little changed after posting the biggest gain in almost three weeks on concern winter fuel demand may stretch U.S. crude stockpiles. "Oil markets are tight and will be very susceptible to any supply shock," said Mr Michael Davies, an analyst at Sucden (UK) Ltd in London. Gold prices hovered in a narrow range around $800 per ounce. COMEX gold futures remained steady with most actively traded February contract edging up marginally to $804.60 compared to $804.80 late in New York. In other precious metals, silver edged up to $14.47/14.52 per ounce from $14.45/14.50 earlier. Platinum continues to slip to $1456/1461 per ounce against $1465/1469 an ounce late in New York on Thursday.

( Source: Businessline)

INR = RBI support and uncertainity over stock market might weaken INR for a short while as year end approaches. Expecting a range of 39.20 to 39.80 for the next fortnight.

EUR = Higher inflation in USA has raised doubts over possibility of further rate cuts by FED to check the impact of sub-prime issue and also as a pre-emptive measure to check recessionary trends. Besides, year-end slumber is also going to set in. Range expected 1.4285 - 1.4545 for the ensuing fortnight.

GBP = = Possibility of further rate cuts by at least another 25 bps will keep GBP offered. Besides the projection of BOE Governor few weeks back about UK economy is also not that rosy. Overall feel range should be between 2.0040 and 2.0375 for the next fortnight.

JPY = Year-end selling by Japanese exporters will keep USD in a range for the next fortnight. Range expected 111.80 to 114.00 during the next fortnight.

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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