INDIAN BANK, HO:International Division

(Fortnightly)

Currency Outlook

US Dollar traded between 46.13 and 46.53 during the past fortnight. Rupee is expected to strengthen during the ensuing fortnight as the month end oil payments have been duly met, oil prices have slipped to $43.40 a barrel from a high of $50 a barrel and inflation have shown signs of receding after the announcement of duty cuts on steel and petro products by the Government. Added to this scenario Standard and Poor have upgraded the Foreign and local currency ratings. Expect the rupee to trade in a range of 46.00/46.40 during the upcoming fortnight.
Forward premia might come down marginally in tune with a strengthening spot rupee. Expect the premia to trade in a range of 2.25- 2.75% band during the upcoming fortnight.

Euro currently facing a major resistance at 1.2200. Initially expect the downmove to 1.1980/1.20 to sustain, form a good support level and trade in a range of 1.1950/1.2300. Against Indian Rupee, Euro is expected to trade between 54.80 and 57.00.

GBP is expected to weaken to 1.7850 levels and should form a good support for a rise to 1.8100. It is expected that the GBP might trade a range of 1.7800 - 1.8200 during the ensuing fortnight.
Against Indian Rupee, sterling is expected to move between 82.10 and 85.00.

Dollar/Yen currently getting supported at 109.00. Expected to trend lower in the upcoming fortnight. A worse than expected Japanese household data also supports the view. A break of 109 might trigger a sell off in the market towards 107.60 levels. Expect the USD/JPY to trade in range of 108/110.80. Against Indian Rupee the JPY is expected to move between 41.20 and 43.00 during the upcoming fortnight.

Other News Items

India Inc and Bankers welcomed the revision in outlook by Standard & Poor (S&P) on India's long term foreign currency and local currency ratings which have been revised upwards to positive and stable respectively. It is opined that the revision in outlook will bolster confidence of foreign investors to invest/set up shops in India and for Corporate India and Banks to raise resources overseas a shade cheaper. (Source - Financial Exp - 24/8/2004)

The country's exports valued at $21931.1 million during April-July 2004-05 period grew by 25.57% against 4.42% recorded in the corresponding period of the last fiscal. Imports during April-July 2004-05 estimated at $30,457.28 million, registered an increase of 33.48% compared to the corresponding period of the last fiscal with oil imports alone contributing to an increase of 61.9% over the corresponding period last year.

The proposed move to tax the interest on NRE and FCNR a/cs has been deferred from 1/9/04 to 01/04/05. The Parliament passed the Finance Bill to this effect on 26.08.2004. (Source :- F/Exp. dt. 27.08.2004).

India's foreign trade policy announced by the commerce minister on 31.08.2004 aims at doubling India's share in world trade to 1.5% by 2009. Other highlights are as follows:-
- All goods and services exported exempt from service tax.
- 100% FDI allowed for setting up free trade and warehousing zones.
- Special agriculture initiative to boost exports of fruits, vegetables,
flowers and minor forest produce.
- Duty-free import of capital goods under Export promotion capital
goods scheme for agriculture sector.
- "Served from India" scheme to accelerate growth in the export of
services.
- Target plus scheme for exporters to achieve quantum growth in
exports.
- Duty Entitlement Pass Book scheme retained till replaced by a new
WTO-compatible one.
- Restriction on importing second-hand capital goods lifted .

Issue 1/2004 Dt.01 06 2004
Issue 2/2004 Dt.16 06 2004
Issue 3/2004 Dt.01 07 2004
Issue 4/2004 Dt.16 07 2004
Issue 5/2004 Dt.02 08 2004
Issue 6/2004 Dt.16 08 2004