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

Currency Outlook

USD/INR opened the fortnight at 45.81 and moved in the range of 45.6550-46.0650, before closing at 45.96. Rupee was well supported by surging foreign inflows into the stock market which traveled through the new peak levels like 9000. There was buying of dollars from oil firms and Banks which had earlier gone short on dollar also covered their positions as the EURO and the Yen eased. These two factors ensured that Rupee to trade in range between 45.6550-46.0650 during the fortnight.

In the ensuing fortnight, it is expected that Rupee is likely to steadily depreciate further on the gains of dollar against EURO and the continuous covering by oil and commodity importers will cap any gain by the local currency, on account of the possible capital inflows. USD/INR is likely to try 46.50 levels with a possible bottom at 45.90 region.

During the fortnight ended 30.11.05, 6 months annualized forwards opened at 0.46 pct and marginally dipped to 0.42 pct before moving high to the levels of 0.77 pct. The present weakness of Indian Rupee is likely to exert pressure on forwards also. Traders are likely to capitalize on the difference in the rupee's value in the domestic forwards market and offshore non-deliverable forwards (NDF) by buying forward dollars from the market and selling them offshore. This might also result in forwards moving up. In the ensuing fortnight, 6 months annualized forwards is likely to trade to a high of 1.20 pct, with a possible bottom at 0.70 pct.

Euro opened the last fortnight at 1.1724 and traded to a high of 1.1904 on the hopes of rate hike on 1st Dec 2005. Dollar losses were triggered after the release of soft US existing home sales data for October, which some traders said reflected the impact of higher rates. However the rebound of EURO to 1.19 was shortlived after the FOMC minutes which discussed about possible hikes not only in December 2005 but also in January 2006. Added to this, better Michigan sentiment, helped USD to tighten its grip over EURO. Ultimately EURO closed the week at 1.1790.

A rate hike of 25 Basis points (2.00 pct to 2.25 pct) is expected in the ECB meeting scheduled to be held on 1st Dec 2005. The rate hike move would mark a bold ECB Stand against political pressure not to hike rates in the midst of a fragile economic recovery. Trichet, President of ECB, said the rate increase would still leave the interest rates at a low level to support economic growth while keeping inflationary expectations in check. Hence, in the ensuing fortnight, when downside of dollar is 'limited', EURO may again come under pressure and may trade in the range 1.1850-1.1450, with downside bias.

Against INR, EUR is expected to trade in the range of 54.80-52.95.

Cable opened the fortnight at 1.7357 and traded in a range of 1.7373-1.7048, before closing at 1.7298. Dollar powered higher on another wave of expectations for higher interest rates ahead of the testimony by Ben bernanke, the nominee for Federal Reserve Chairman and aided by buoyant consumer spending data. Net flows of foreign capital into US assets surged to a record of USD 101.9 Bio in September, well above expecations and more than enough to cover a record trade deficit of USD 66.1 Bio that month. All these factors, ensured soft bias of GBP against dollar.

In line with the existing trend, GBP is likely to trade in the range of 1.7400-1.7000.

Against INR, we expect GBP to trade in the range of Rs.78.60-80.50.

 

During the last fortnight, USD opened at 118.88 against JPY and traded in the range of 118.21-119.94, before closing at 119.82. The Fed's ongoing rate-tightening campaign has been one of the big drivers of dollar gains this year, gaining more than 16 pct against JPY, largely due to the fact that Japanese rates have long been mired near zero. Low rates battered the yen across the Board, pushing the currency to a new eight year low against the New Zealand dollar and its lowest level against the Australian dollar since 1998. US currency had gained further strength as readings of US durable goods orders and new home sales in October and consumer confidence in November all came in stronger than expected.
In the ensuing fortnight, we expect USD/JPY to move higher to the level of 123.00 with a possible dip to the region of 119.50.
Against INR, JPY would trade in a range of 37.60-38.70.

Other News Items

The Spices Board will submit a proposal to the ministry of commerce to include 100 pct export - oriented units (EOUs) and units situated in Special Economic Zones (SEZs) in the recently announced WTO Compatible subsidy scheme for pepper exports. The scheme announced earlier had omitted 100% EOUs and SEZ units, and this has created widespread criticism among the exporters fraternity. The Government had announced a subsidy at the rate of Rs 7 per Kg (Rs.5 a Kg or actual cost incurred whichever is less for International freight and Rs 2 or actual cost incurred whichever is less for domestic transport, effective from Nov02,2005 to Mar31,2006). The Government had also announced that the subsidy would be released subject to a maximum of 20,000 tonne and disbursed to exporters on a first cum first serve basis.
The most difficult problem is that EOUs and SEZ units mostly use imported pepper, and there should be proper mechanism to estimate Indian black pepper exports through these units. Unless mechanism is developed for this, the scheme would be a failure. But as a major chunk of the exports is through these units , these units must be included in the scheme for the benefit of the growers said the exporters.

Source: Business Standard

Soymeal exports in October reached 198,767 tonne, 907% more than in last October, according to data released by the Soybean Processors Association (Sopa) of India. Exports for the year ending October2005 stood at 2.2 million tonne.

Increased demand from China ,Korea, Vietnam, and Singapore for non-genetically modified soymeal also contributed to the jump, According to Mr Agarwal Sopa Chairman .. "soybean availability was poor during 2004 kharif season due to 1 Million tonne shortfall in production and reluctance on part of farmers to sell their produce at low prices. This year crushers have adequate soybeans as production improved by 5.3%," a city based soybean analyst said.

"Figures for October indicate that exports to South East Asia were poised for a quantum jump this year. However, the bird flu scare spoilt all efforts", another edible oil exporter said.

Source : Business Standard

With demand exceeding supply, India is expected to remain a net importer of natural rubber till 2020,said the Association of Natural Rubber Producing countries (ANRPC).
At the ninth association meeting it was said that there was a general increase in production and also domestic consumption despite shrinkage in planted areas in Malaysia and Sri Lanka. All other nations showed an increase with Vietnam way ahead. The share of ANRPC in global NR consumption was 20.3% in 2002 and was growing at an annual rate of 7.3%. He said that fluctuating prices, uneconomic size and labour shortage had affected the renewed interest in sustainable development of the rubber sector.

As per the statistics of the Rubber Industry Small holders Development Authority (Risda), the vast majority of rubber small holdings averaged around 2.3 hectares. This uneconomic holding size compounded by farm labour shortage had hit the industry hard, he said. Contrary to the global scenario, India, which had an average size 0.5 hectar, had a productivity of 1,734 kg per hectare ,20% higher than that in the estate sector of 1,445.

The board had adopted a group approach where small holders were encouraged to form village level groups supported to undertake all farm management operations right from the planting level to processing and marketing.

Source : The Financial Express

Mining companies may be brought on par with steel makers for grant of licences for mining of iron ore. The mines Ministry wants this to be made a part of the mining policy being drafted by Anwarul Hoda Committee.
State governments particularly of Jharkhand and Orissa where economic development has been slow, have been signing memorandum of understanding with steel manufacturers like Korean steel major Posco, the LN Mittal group and the Tatas. These companies are being pledged mining rights for iron ore.
The views of the mines ministry are in contrast with the opinion expressed by the steel ministry appointed Dang Committee, which had made a case for giving preference to captive mining over mining for exports. The mines ministry is of the view that the State governments should not insist on value addition by way of downstream user industries such as steel mills , though value addition in the form of pelletisation, benefication and blending will occur naturally.
In a draft policy document submitted to the Hoda Committee and the Prime Minster 's Office,the ministry said in order to encourage foreign direct investment in mining it was important that steel-makers in the country offered international prices for iron ore and if they did not do so permission was given to export the product to the highest bidders. "It is not that the mines ministry is against steel companies being given captive mines, but we feel that captive miners should be discouraged from exporting iron ore," said an official, adding that steel makers were offered an assured supply of iron ore not for exporting but producing steel. Besides, iron export by captive miners would lead to distortions in the export market.
The government has setup a committee, headed by Planning Commission member Anwarul Hoda,to review the National Mineral policy and suggest amendements to the Mines and Minerals Development and Regulation (MMDR) Act, 1957.

Source : Business standard

FCNRD(w.e.f. 02.12.2005)						NRE(w.e.f. 02.12.2005)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	4.59	4.44	2.57	3.67	5.39	5.60
2 Years & above but less than 3 years	4.61	4.44	2.72	3.74	5.45	5.60
3 Years & above but less than 4 years	4.63	4.45	2.84	3.80	5.51	5.65
4 Years & above but less than 5 years	4.66	4.45	2.92	3.85	5.59	5.65
5 years only	4.69	4.44	3.00	3.90	5.62	5.65
SB NRE - 3.50 % at par with domestic savings deposit

 

Archives

For any clarification please contact us at ibcoid@satyammail.com