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

Currency Outlook

USD gained strengths against INR during last fortnight from 43.54 levels to a high 44.1750 with rising oil prices and resultant wide trade deficits fuelling market concerns as oil forms a sizeable chunk of India’s import bill.

For the ensuing fortnight we expect USD / INR to consolidate as oil comes off its highs and exporter covering at these high levels infuses some strength into rupee. We expect USD/ INR to trade in a range of 43.80 - 44.20 levels with 44.20 capping for some time to come.

Although spot INR was losing against the greenback, forwards have not moved much higher. Every rise in the premia was encashed by the exporters to take advantage of ‘weak’ Rupee trend and premia continued its southward movement, resulting in near months forwards going into discounts also.

For the period ahead, 6 months forwards is expected to range between 0.22 pct to 0.68 pct. (5 ps to 15 ps.), as long as Rupee moves in the range of 43.80-44.20.

During the fortnight ended 31.08.05, Euro opened at 1.2368 and moved in the range of 1.2127 - 1.2375 and ultimately closed at 1.2347. As the Chicago PMI data was disappointing, dollar started to lose its earlier gains and EURO moved higher towards 1.2400 levels.

In the ensuing fortnight, we expect Euro to be supported at 1.2265 levels for a move higher targeting 1.2490, a break-up of which may lead to further gains to 1.2620 levels.

Against INR, EUR is expected to trade in the range of 54.00-55.50.

GBP moved in a range of 1.7821-1.8148 during the last fortnight ended on 31.08.05. A strong dollar sentiment prevailed during the entire fortnight gained momentum, when crude prices traded in the region of USD 70 per barrel.

In the ensuing fortnight, GBP is likely to be supported at 1.8170 levels for a move higher to 1.8620.

Against INR, we expect GBP to trade in the range of Rs.80.00 to 82.00.

 

USD/JPY traded in the range of 109.06 - 111.79. The yen has given back some of the big gains that took it to a seven-week high against the dollar and a six week peak versus euro as investors took a breather from their heavy buying of Japanese shares in the past two weeks.

In the ensuing fortnight, we expect USD to get capped at 110.80 levels against JPY and move down to 108.10 levels.

Against INR, JPY would trade in a range of 39.70 and 40.70

Other News Items

The trade between India and China has touched a record of Usd 9.93 billion in the first half of 2005. There has been a rapid growth in the bilateral trade between both the countries since 1991. In the last five years, bilateral trade has shown a high growth trend from 23 % in 2001 to 79 % in 2004. The bilateral trade volume last year amounted to USD 13.6 billion. During the first half of current year the growth in bilateral trade has been an impressive 40 %, offering plenty of scope for Indian businesses to undertake trading and commercial operations in China, currently the world’s third largest trading nation. If the current growth rate is maintained, the bilateral trade volume could zoom to USD 462 billion by 2010 as per the forecasts of Federation of Indian Export Organisations.

Investment and economic cooperation between the two countries have also picked up in recent years. By Sep 2004, there had been 133 Indian investment projects in China with a contractual value of USD 268 million and actual investment of USD 93.4 million. During the same period there had been 17 Chinese projects in India with a total contractual value of over USD 1.5 billion.

(Financial Express)

A bill to discontinue the existing cess on the export of several agricultural products was introduced in the Lok Sabha by the Commerce and Industry Minister, Mr Kamal Nath on Aug 16, 2005. This bill would obviate the need for exporters to shell out nearly Rs 100 Crore amount that they are now paying every year to the exchequer as export cess on various agricultural products. The discontinuation of this cess on exports would make our exports more competitive. Another argument put forth in favour of discontinuation of this cess is that as it is levied as a duty of customs, the exporter is required to go through the rigours of all customs procedures before the commodity can be physically shipped out of the country. The move to abolish cess on agri product exports came close on the heels of the Commerce Minister’s announcement in this year’s Annual Supplement in the Foreign Trade Policy that export cess levied under different Commodity Board Acts would be abolished.

Currently the levy of cess on agri products is done under different enactments like Agricultural and Processed Food Products Export Cess Act, Tobacco Cess Act, Spices Cess Act, Marine Products Exports Development Authority Act, and Coffee Act. To abolish the cess some of these acts would be repealed while the others like MPEDA, Coffee Act and the Tobacco Cess Act would be amended.

India’s exports during July 2005 notched up a 27 % growth at USD 7234.41 million compared with USD 5705.22 million in the corresponding month of 2004. Estimates provided by the DGCI & S for the month of July 2005 show that the commodities / sectors that have performed well include iron ore, petroleum products, marine products, plastics and linoleum, rice, readymade garments of all textiles, basic chemicals, engineering goods and gem and jewellery.

The country’s imports during July 2005 rose 33.21 % at USD 9904.22 million from USD 7435.16 million during July last year.

The country’s exports recorded a growth of 21.33 % during the first four months of current fiscal at USD 28134.72 million (USD 23188.47 million last year) while imports during April - July 2005 are valued at USD 42109.47 million (USD 30880.86 million last year) showing a growth of 36.36 %. Oil imports during this period stood at USD 12543.23 million registering a 32.33 % growth. The bulk of import growth here is in Capital goods, raw materials and intermediate goods and not so much in consumer goods.

The trade deficit for Apr - Jul 2005 has widened to USD 13974.75 million (USD 7692.39 million). While announcing the trade figures, Union Minister for Commerce and Industry, Mr Kamal Nath said that widening trade deficit was not a problem as we have a healthy forex reserves position. The Minister also said that it was the constant endeavour of the Government to reduce transaction cost through simplification of procedures so as to encourage foreign trade. He said that the Government has announced an initiative to set up six free trade and warehousing zones through MMTC Ltd at locations like Kandla, Noida, Mumbai, Haldia, Kochi and Ennore with an estimated investment of Rs 100 crore for each warehouse.

Foreign Direct Investment has also increased during the current fiscal with the first two months data showing inflows amounting to USD 1.2 billion compared to USD 800 million during corresponding period last year.
(Business Line)

Gem & jewellery, Transport equipment and machinery and other instruments sectors have contributed significantly to the export growth of the country during the current fiscal. Gem & jewellery with a share of 16.36 % in total exports clocked a growth of 19.63 % at USD 2284 million during April - May 2005, against USD 1909.28 million in the corresponding period of 2004. Transport equipment with a share of 5.59 % logged a growth of 106.87 % at USD 780.16 million (USD 377.12 million during the corresponding period of previous year). Machinery and other Instruments (4.62 %) posted a 31.57 % growth at USD 644.38 million compared to USD 489.78 million during Apr-May last year.
(Business Line)

India’s textile exports to the US and EU have marked a quantum jump during first half of the current calendar year (Jan - June), marking a strong performance after the elimination of quotas. In the US market, India’s exports achieved a growth of 29.5 % while it has grown nearly 75 % in the EU.

India’s performance is much higher than the average growth of imports of textiles and clothing to USA, which is 10.98%. In terms of growth, India stands next only to China, while India’s other traditional competitors like Pakistan, Indonesia and Turkey have shown lower growth during this period. Export of items like cotton yarn, knitted fabrics and home textile products like pillow cases, sheeting, bed spreads and towels have registered impressive growth.

In the European Union, India has shown a positive growth in textile exports in April - May 2005, which is commendable considering the fact that there was a decline in overall imports from extra EU sources into the European Union.

With China facing the prospects of restrictions from EU and US, exporters of textiles and garments from India have good opportunities to increase their sales in these markets.
(Financial Express)

FCNRD(w.e.f. 03.09.2005)						NRE(w.e.f. 03.09.2005)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	3.99	4.24	1.99	2.97	5.33	4.75
2 Years & above but less than 3 years	3.99	4.16	2.12	2.94	5.22	4.75
3 Years & above but less than 4 years	4.01	4.16	2.25	3.04	5.18	4.80
4 Years & above but less than 5 years	4.04	4.17	2.37	3.15	5.22	4.80
5 years only	4.06	4.18	2.49	3.29	5.23	4.80
SB NRE (w.e.f.01.07.2005) 3.70

 

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