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

MARKET OUTLOOK FOR THE NEXT FORTNIGHT

(16/03/07 - 31/03/07)

Third Quarter Review of Annual Statement on Monetary Policy

for 2006-07 announced by RBI

>· Repo Rate increased to 7.50 per cent from 7.25 per cent.
>· Reverse Repo Rate, Bank Rate and Cash Reserve Ratio (CRR) kept unchanged.
>· GDP growth forecast at 8.5-9.0 per cent during 2006-07.
>· Inflation to be brought down as close as possible to 5.0-5.5 per cent at the earliest, while continuing to pursue the medium-term goal of a ceiling on inflation at 5.0 per cent.
>· Provisioning requirement increased to two per cent for standard assets in the real estate sector, outstanding credit card receivables, loans and advances qualifying as capital market exposure and personal loans (excluding residential housing loans).
>· Provisioning requirement increased to two per cent for the banks' exposures in the standard assets category to the non-deposit taking systemically important non-banking financial companies (NBFCs).
>· Interest rate ceiling on NRE deposits reduced from 100 basis points to 50 basis points above LIBOR/SWAP rates for US dollar of corresponding maturity.
>· Interest rate ceiling on FCNR(B) deposits reduced from LIBOR/SWAP rates to 25 basis points below LIBOR/SWAP rates for respective currency/ maturities.
>· Banks restrained from granting fresh loans, in excess of Rs. 20 lakh, against NRE and FCNR(B) deposits and being advised not to undertake artificial slicing of the loan amount to circumvent the ceiling.

(Source: RBI release)

FDI COMMITMENTS IN TELECOM, IT AT Rs 80,000 cr

The Reserve Bank of India on the 13th of this month hiked the Cash Reserve Ratio by 50 basis points to 6 per cent which will suck in about Rs 14,000 crore from the banking system. The hike in CRR will be effective in two phases - by 25 basis points effective from February 17 and another 25 basis points from March 3. On December 8 2006, the CRR was hiked by 50 basis points to 5.5 percent and on January 31 2007, the repo rate was increased by 25 basis points to 7.5 per cent.

As a fallout, the yields in the government and corporate debt markets will go up and make borrowings, across sectors, dear. The RBI press release cited the "need to contain inflation expectations in the light of the current liquidity conditions" as the reason.

ECONOMY SET TO GROW AT 9.2%

The Indian economy is in the midst of its best-ever growth phase in recorded history with the GDP slated to grow by 9.2% in the current fiscal. That makes it the highest-ever growth rate since the all-time high of 10.5 per cent achieved in 1988-89. With the current fiscal, there have been 4 successive years of 7.5- plus per cent growth of which 3 have registered annual increases of over 8.5 per cent. The Finance Minister described the 9.2 per cent GDP growth (as per the "advance estimates" of national income, released by the Central Statistical Organisation) as particularly gratifying as it was recorded over a base year growth of 9 per cent.

The present boom is largely led by manufacturing industry and services. While industry as a whole is expected to grow by 9.9 per cent his fiscal, the corresponding rates for manufacturing are even higher at 11.3 per cent. During 2006-07, the country's GDP at current market prices is estimated at Rs:41,000,636 crore or around $ 930 billion at current exchange rates. The coming fiscal is likely to see this cross the one-trillion mark, making India the tenth one-trillion dollar economy after the US, Japan, Germany, China, UK, France, Italy, Spain and Canada.

Other News Items

The Union Ministry of Communication has said that foreign direct investments worth Rs:80,000 crore has been committed by various players in the telecom and IT sector in the past 2 years. While some of the projects for which the investments were committed have been completed, the others are bringing in the money in phases over the next two to three years.

The major investments include $250 million being pumped in by Swedish equipment major Ericsson for setting up a manufacturing plant for GSM mobile equipment in Jaipur and a research and development center in Chennai. Nokia is investing $200 million for setting up a handset manufacturing unit and a global network operations center in Chennai. Elcoteq is investing $100 million in Bangalore for setting up a telecom manufacturing unit and Aspocomp is putting in $200 million in Chennai for setting up a unit for producing high density interconnection gear. The unit will be operational in the second half of 2007. HonHai is bringing $110 million to Chennai to manufacture mobile handsets and electronic hardware. IT major IBM has committed $6 billion over the next five years for expansion of software, services and customer-support and also funding the new service delivery centers in Bangalore and a telecom research facility in New Delhi. Other major investments include $1.1 billion from Cisco for a number of initiatives and $2 billion from Vodafore for expanding the network of its recently acquired Hutchison Essar. These projects are in the various stages of implementation.

With the telecom sector growing at over 5 million subscribers a year, gear manufacturers, handset makers and component production companies are making a beeline to get a share of the market. According to Government estimates, additional investments of $2 billion are expected this year.

(Courtesy: Business Line )

Securitising existing loans can render funds to banks for further lending and help them deal with shortage of capital, a Crisil study said. Funds raised will not require equity dilution and will be free from constraints of additional deposits, the rating agency said in a release.

Funds raised would not be subject to cash reserve ratio and statutory liquidity ratio, resulting in a more efficient use of funds. The bank could evolve to more complex transactions and use securitisation more centrally from a funding perspective, the study said.

(Courtesy: Busuiness Standard )

CASHEW INDUSTRY LOOKS TO EAST FOR GROWTH

The cashew industry is now looking at the eastern coast of the country as a region of promise. While the Vision 2020 Committee of the Cashew Export Promotion Council of India (CEPCI) expects the eastern States to contribute around half of the production target set for 2020, cashew processors and manufacturers from the west coast are planning to assess the viability of processing cashew in the east coast. The Vision 2020 goal is to produce 1.95 million tonne of cashew. Of this, the east will have to produce half of the Vision 2020 goal, which will be close to 9.5 lakh tonnes. At least two lakh tonnes will have to come from Tamil Nadu, four lakh tonnes from Andhra Pradesh and 3.5 lakh tonnes from Orissa, West Bengal and the North-East.

It is observed that the eastern states are regions of promise for cashew as they have shown rapid development in cultivation and process over the last two decades. There could be continual improvement based on interactin and provision of knowledge and technology.

Tuni in Andhra Pradesh and Jeypore in Orissa are considered as major cashew processing centers in the east coast. It is mainly because of the availability of raw cashew and cheap labour in these areas. Cashew industry in Karnataka, which has an edge on quality of processing, packaging and exports, will interact with cashew processors in the east coast to add value to its current capabilities.

(Courtesy: Busuiness Line )

Raw cotton, yarn and textile industries in India and Far-Eastern nations are set to benefit immensely from the total stoppage of cotton spinning in the UK, according to Ray Butler, Editor, Cotton Outlook, a UK based journal. "Cotton exports from these nations will increase manifold in near future as cotton spinning activities in Europe and US are also declining drastically. It is so because Western countries find import cheaper than domestic manufacture", Mr Butler said.

The excellent quality of medium and short staple cotton and globally competitive prices are main strengths of Indian cotton export, he said. Though in cotton year 2006-07 (October-September) India is likely to overtake the US and become world's second largest cotton producer after China, the position in 2008-09 might not be the same. The US could bounce back as the second largest cotton producer because it is already in the process of revising farm production legislation, policies and programmes very soon, more so keeping in view outcome of Doha talks, Mr Butler said.

In value terms, India stood fourth after China, Australia and Uzbekistan. Nevertheless, India has fully exploited its potential to move ahead in world cotton market both value and volume-wise.

 

(Courtesy: Busuiness Standard )

INR = INR moving in RBI support zone. Expecting Central Bank support for the next few days. As on 16th March 2007, INR is overvalued by 8%. Range expected 43.90 to 44.50. Stock Index is having more say nowadays in inter-bank trading.

Forwards: Due to higher inflationary impact and consequent statements by RBI officals, market is nervous and paying might continue for some more time. Advance tax outflow also contributing to this paying pressure. Overall, feel 3.80% to hold for 6 months and 3.35% to hold for 1 year for a downward move. Market is likely to ease after first week of April 2007.

EUR = EUR looks bullish with weekly chart showing support around 1.3215 and resistance around 1.3475. Against INR it is likely to trade between 58.10 to 59.25. The problem in US sub-prime mortgage market hurting Dollar's fortune and US rate cut expectation by 0.25% gaining momentum.

GBP = GBP also looks biddish and trading range for the next fortnight to remain within 1.9210 to 1.9550. Against INR it is likely to trade within 84.60 to 86.60. Resumption of carry trade could put GBP in the dirver seat.

JPY = Range expected 114.70 to 118.00 with a downward bias. More unwinding of carry trades will help JPY to gain against USD. Against INR, JPY to trade between 34.70 to 38.40.

DISCLAIMER: Views expressed here are only indications and 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.

FCNRD(w.e.f. 01.04.2007)						NRE(w.e.f. 01.04.2007)
PERIOD	USD	GBP	EUR	CAD	AUD	NRE
1 Year & above but less than 2 years	4.97	5.61	3.93	4.05	6.46	5.72
2 Years & above but less than 3 years	4.77	5.51	3.99	4.03	6.36	5.52
3 Years & above but less than 4 years	4.71	5.46	3.99	4.02	6.34	5.46
4 Years & above but less than 5 years	4.72	5.42	3.99	4.04	6.35	5.46
5 years only	4.76	5.37	3.98	4.07	6.31	5.46
SB NRE - 3.50 % at par with domestic savings deposit

 

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