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

 

Highlights

• Bank Rate kept unchanged.

• Reverse Repo Rate under LAF kept unchanged.

• Repo Rate increased by 50 basis points from 8.5 per cent to 9.00 per cent.

• Cash Reserve Ratio to be increased by 25 basis points to 9.0 per cent with effect from the fortnight beginning August 30, 2008.

• GDP growth projection for 2008-09 revised from the range of 8.0-8.5 per cent to around 8.0 per cent, barring domestic or external shocks.

• While the policy actions would aim to bring down the current intolerable level of inflation to a tolerable level of below 5.0 per cent as soon as possible and around 3.0 per cent over the medium-term, at this juncture a realistic policy endeavour would be to bring down inflation from the current level of about 11.0-12.0 per cent to a level close to 7.0 per cent by March 31, 2009.

• While there are early signs of some moderation in money supply and deposit growth, they continue to expand above the indicative projections warranting continuous vigilance and appropriate and timely policy responses.

• In view of the evolving environment of heightened uncertainty in global markets and the dangers of potential spillovers to domestic markets, liquidity management will continue to receive priority in the hierarchy of policy objectives over the period ahead.

• Barring the emergence of any adverse and unexpected developments in various sectors of the economy, assuming that capital flows are effectively managed, and keeping in view the current assessment of the economy including the outlook for growth and inflation, the overall stance of monetary policy in 2008-09 will broadly continue to be:

• To ensure a monetary and interest rate environment that accords high priority to price stability, well-anchored inflation expectations and orderly conditions in financial markets while being conducive to continuation of the growth momentum.

• To respond swiftly on a continuing basis to the evolving constellation of adverse international developments and to the domestic situation impinging on inflation expectations, financial stability and growth momentum, with both conventional and unconventional measures, as appropriate.

• To emphasize credit quality as well as credit delivery, in particular, for employment-intensive sectors, while pursuing financial inclusion.

(Source: RBI website)

Private sector managed provident fund and superannuation trusts can now have greater exposure in the stock markets.  They can soon directly invest up to 15 per cent of their investible funds in shared of companies on which derivatives are available in the Bombay Stock Exchange (BSE) or National Stock Exchange. This has been provided in the new investment pattern for non-government provident, superannuation and gratuity funds issued by the Finance Ministry.

The new investment pattern, which would come into force from April 1, 2009, has been issued after factoring in the developments in the financial market and economy.  They have been revised to make it more flexible and give the trustees of these funds more autonomy and discretion.

At the draft stage of these new guidelines, the Government was looking to allow these funds to invest up to 10 per cent of their portfolio in shares of companies that had an investment grade debt rating from a credit rating agency.  It was also proposed to allow investments in shares of BSE Sensex and NSE Nifty companies and equity-linked schemes of mutual funds. Official sources said that the latest move to specify the investment universe as those on which derivatives are available was intended to ensure that these PF, gratuity and superannuation funds gets invested in good quality stocks with large trading volumes and market capitalization. 

Currently, about 228 single stock futures are traded in the futures and options segment of NSE, with about 39 more to be added from the last week of August.  The other changes made in the investment pattern include merger of Central Government Securities, State Government Securities and units of gilt Mutual Funds into a single category and allowing investment up to 55 per cent of the investible funds; providing a flexible ceiling for various category of instruments instead of fixed investment ceiling as at present; providing new category of instruments, such as rupee bonds of multilateral funding agencies, money market instruments and permitting investment in term deposit receipts of not less than one year duration issued by scheduled commercial banks. The new investment pattern also recognised the fiduciary responsibility of the trustees and the need for exercise of due diligence by them.  It gives them greater flexibility in terms of a wider variety of financial instruments as well as greater freedom to actively mange the portfolio.

( Source: Businessline)

The annual Wholesale Price Index-based inflation rose 12.44 per cent during the week ended August 2, above the previous week’s annual rise of 12.01 per cent. During the last reported week, the WPI moved up to 240.4 points from 239.6 points during the previous reported week.  The annual rate of inflation stood at 4.39 per cent during the corresponding week a year ago.  The final WPI for the week ended June 7 was revised upwards and the annual rate of inflation based on final index, calculated on point to point basis, stood at 11.66 per cent as compared to 11.05 per cent points reported provisionally.

( Source: Businessline)

A punishing spell of rains driven into the peninsula during the week just past has swung monsoon back into surplus territory, according to latest statistics.  An India Meteorological Department (IMD) update said that the profitable outing from end-July helped consummate the two per cent surplus as of Wednesday.  This represents a significant turnaround from a potentially damaging deficit of 23 per cent recorded till as late in July as the last week.  The situation showed signs of improvement ever since, peaking to a surplus of 36 per cent for the week ending Wednesday.  Only four Met sub-divisions are now left in the deficit list, two each in the peninsula and in the North-East.

( Source: Businessline)

The euro zone economy contracted for the first time ever in the second quarter, with output falling 0.2 per cent as German growth succumbed to global strains, official data showed. The results, released by the EU’s Eurostat data agency, come in a context of rising concern that recession, two quarters running of contraction, is now stalking the 15 nation euro zone. The euro zone economy had grown by 0.7 per cent in the first three months of 2008, held up by a 1.3 per cent rise in Germany. That buoyancy slipped away in the second quarter with the German economy contracting for the first time for nearly four years in the second quarter of 2008, shrinking 0.5 per cent compared to the first three months of the year.

The French economy contracted by 0.3 per cent over the quarter, as did Italy’s while Spanish gross domestic product dipped by 01. per cent. The worst previous performance of the euro zone economy was in the second quarter of 2003 when growth was measured at zero, skirting the contraction seen now.

The figures for the EU as a whole were scarcely better, with gross domestic product figures dipping by 0.1 per cent from the performance in the previous quarter. The overall EU figures were helped by the British economy going some way to bucking the trend with expansion for the second quarter recorded at 0.2 per cent.

( Source: Businessline)

USD/INR = The resurgence in USD has had it’s impact on INR too. Though oil is a lot more easier than what it was a couple of weeks ago, rupee has tended to depreciate in the face of more demand. With 43.00 broken, 43.50 may offer resistance with 42.50 as support.

EURO = Trichet’s comments on the Euro economy’s downside risks triggered a fall which was accentuated by the USD’s new found strength. With many support levels broken one after another, looks like a reversal of the big upmove.

GBP = BOE’s report on the outlook for the economy did no good for the GBP which was a bit over-priced. The markets are so bearish that a better CPI was grossly overlooked.

JPY = With USD dragging JPY near to 111.00, exporters are seen pushing it up to 109.00 levels. With no interest rate change forecast in the near future, JPY is seen in a range set by exporters and impoters.

PS: Views expressed here are only indications. The Bank or any of its officials will not be responsible for any consequences of any decisions taken on the basis of these indications.

NRE Term Deposits & FCNR (B) Deposits (w.e.f. August 01, 2008)

FCNR (B) DEPOSITS (w.e.f. 01.08.2008)						NRE(w.e.f.01.08.2008)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE TERM DEPOSITS
1 Year & above but less than 2 years	2.50	5.42	4.62	3.10	7.37	3.25
2 Years & above but less than 3 years	2.75	4.88	4.29	2.67	6.57	3.50
3 Years & above but less than 4 years	3.11	4.87	4.25	2.86	6.50	3.86
4 Years & above but less than 5 years	3.34	4.85	4.22	2.99	6.52	3.86
5 years only	3.49	4.81	4.19	3.10	6.49	3.86
SB NRE - 3.50 % at par with domestic savings deposit

 

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