INDIAN BANK, HO:International Division

(Fortnightly)

Currency Outlook

US Dollar traded between 45.70 and 46.44 during the past fortnight. Rupee is expected to consolidate gains in the ensuing fortnight and trade in a range of 45.60 and 46.20. Oil prices have remained stable around $43 a barrel with no immediate threats of any spike, Inflation likely to be controlled in the ensuing fortnight with monetary controls of RBI by hiking the CRR by 50 BPS to 5% during last week. Good foreign inflows by way of FDI and investment in the stock markets likely to bolster the sentiment for the rupee. A break of 45.60 may lead to a further rally to 45.40 levels in the upcoming fortnight.
Forward premia might follow the spot rupee movements and trade in a range of 1.00 - 1.75%. in the upcoming fortnight. Any dips in the market should provide arbitrage opportunities for Banks to utilize dollar funds and swap it into Indian Rupees for better deployment.

Euro likely to trade in a range of 1.2050 - 1.2300 during the ensuing fortnight. The data released on the performance of the US economy has been supporting the dollar with the Federal Reserve meeting on 21st September to decide on interest rates. A hike of 25 bps to 1.75% is expected. Against Indian Rupee Euro is expected to trade between 55.00 and 56.50.

GBP is expected to trade in the range of 1.7600 - 1.7900 in the upcoming fortnight. The strong US data and expected rate hike in the US might prompt a weaker sterling to 1.7600 levels where buying should emerge. Against rupee the sterling is expected to trade between 80.25 and 82.75.

Dollar/Yen currently getting supported at 109.60. Expected to trade a range of 109.00 and 110.60. The dollar sentiment should support a higher USD/JPY in the upcoming fortnight. Against Indian Rupee the JPY is expected to move between 41.00 and 42.80 during the upcoming fortnight.

Other News Items

The Indian Auto component industry could see about $20b to $25b in exports and $13b to $15b in domestic consumption and indirect exports by the year 2015 according to a vision 2015 study by M/s. McKinsey & Co. Moreover this would create 2.5-3 million additional direct and indirect jobs and provide a significant employment opportunity for the rural/small town population. (Source - Business Line dt. 01/09/2004).

With the quota system likely to go many textile exporters who had set up base in countries such as Nepal, Bangladesh, Middle East and African countries are now relocating back to the home country. This will put them in a competitive position as the procurement cost will be lower in India. According to the industry players, Nepal has sought an extension of the quota regime for a few more years before the WTO, largely due to the exodus of textile manufacturing units from the country to India.
(Source - Business Line dt. 08.09.2004).

Steel Ministry is against imposing restrictions on export of Iron ore as part of the strategy to contain prices of raw materials. The ministry will however soon come out with a comprehensive policy for the steel sector. Talking to the media, Steel Secretary Binoo Sen said "The Govt. will announce new steel policy aimed at containing costs and increasing exports next month". She also ruled out restrictions on iron ore exports as part of the strategy to control prices. (Source Fin .Exp- 24/9/2004).

India and Thailand have agreed to move faster in the direction of a free trade area (FTA) by reducing by half their applied levels of tariffs on 82 select commodities. This comes into effect from 01/09/04. According to the amended frame work both parties have decided to reduce their applied tariff by 75 per cent in the period 01/09/05 to 31/08/06 and by 100 per cent by September 1, 2006. (Source- Financial Express dt. 07.09.2004).

Exports of non-oil companies rose 31% in 2003-04, nearly double their growth in net sales. On the expenditure side, foreign exchange payments of dividends and royalty have declined. The aggregate net revenue earnings in forex of 320 companies have increased to Rs.16,344 crores in the year 2003-04 compared to 11,206 crores in 2002-03. (Source - Business Line dt. 06/09/2004).

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
Issue 7/2004 Dt.01 09 2004