Forex Dilemma 12

The Rupee has gained substantially and in great strength to value at Rs 39.50 per USD. This is inspite of heavy intervention by RBI under instruction from the Govt. of India.

INR 37.00 : 1 USD is a most reasonable value even as on date.
At this rate Rupee should reach this level even before Diwali 2007.

INR 35.00: 1 USD should be the target on the New years day 2008.

Forex Dilemma 10.

Read this.
Re at new 9-yr high of 41.63/$
Agencies / Mumbai April 23, 2007 11:00 Hrs.

Credit Policy: Re zooms to 41.17/$
Press Trust of India / Mumbai April 24, 2007

.... and now.
I just remembered a nursery rhyme,
1 - 2 buckle my shoe .....
9 - 10 a big fat hen.
Just that the big fat hen called the Indian Rupee has started laying golden eggs all of a sudden., or everybody have started valuing the eggs to gold.

now 1 Eur = Re 56.48
1 UK Pound = Re 83.31

Indian Rupee has not seen substantial gains against the Euro or the UK Pound. Even in 2006 the Euro was close to 52 and UKP close to 79.

All the hue and cry that the Indian merchandise exports will collapse is all nonsense. The situation now is that the appreciation is more an after thought of the fall of the USD against Euro and UK Pound. The real appreciation of the Rupee is yet to be witnessed. USD should be traded at 38 rupees to reach the last year levels of Euro and pound.

Indian exporters should demand better prices for what they export. Not meekly succumb to the orders at ridiculous prices. If they quote china, then let them go to china for procurement. It is high time Indian exporters moved up the value chain and stop exporting raw materials and low value merchandise. Indian exporters are not exporting the surplus capacity but exporting the very best. For example cashew nuts of the best quality and size are not available in the domestic market even for a high price but exported. This should stop. the rise in the rupee will see a natural consequence of diversion of this sale to the domestic market. There is huge demand for many merchandise in the domestic market that are being exported. When the exporters are exporting with meager margins, the rise of the rupee is a good effect on the low margin exports and only high margin , high value exports would continue despite the rise in the value of the rupee. There will be a correction in the salary levels of the info-tech industry consequently effecting in the other industries.

Dhakshina Moorthy, K.M.

Forex Dilemma 9

Good Show!! Good Show!!

Read this.
******
Stronger Re has an upside

India Inc would have gained Rs 7,813 cr if the currency had appreciated at the start of last fiscal

PRADIP KUMAR DEY in Financial Express.
Posted online: Tuesday, April 10, 2007 at 0015 hours IST
*******
.... and now.

The rupee had yesterday ended at 42.92.

People have started realising only now that for the Indian conditions the nation stands to gain on the appreciation of the rupee. We should the appreciation in terms of the situation in India and not merely reproduce what world bank recommends or some economist some where studied some banana republic and comes to the conclusion that the depreciating currency would help. India is a land of intellectuals and independent thinkers. It is just that the decision makers in power should apply their mind and not merely drum beat what some body in the US says about our economy. It is our economy not theirs.

You may call it luck, fate, destiny or act of nature., it does not matter. The Indian Rupee is gaining strength, breaking long term price barriers. It looks like the elephant is on the roll. There is no stopping now. Good Show!!

Dhakshina Moorthy, K.M.

Forex Dilemma 8

Read this.

******
Rising rupee pushes down inflation
GAYATRI NAYAK

TIMES NEWS NETWORK[ THURSDAY, MARCH 29, 2007 02:50:28 AM]
MUMBAI: A STRONG rupee might hurt exporters, but there are many advantages for the economy. By letting the rupee appreciate, RBI is indirectly controlling inflation by simultaneously managing liquidity and addressing overheating of the economy to a certain extent.

The value of the rupee touched a seven-year high at the close of Wednesday trading to 43.05 per dollar. In the last one week, the rupee has recorded one of the fastest gains against the US dollar. This, according to treasury officials, is largely because the central bank has refrained from purchasing dollar inflows. Thus, in the process, it also curtailed liquidity growth that helps curb demand-side inflation.

******

Rupee appreciation to hit software cos
MINI JOSEPH TEJASWI

TIMES NEWS NETWORK[ THURSDAY, MARCH 29, 2007 12:30:55 AM]

BANGALORE: With the rupee appreciating over the last couple of days and touching a seven-year high against the dollar on Wednesday, the brows in software companies are getting deeper.

A strong rupee is expected to affect the fourth quarter results of these companies adversely. Analysts expect software firms to report 1-2% lower operating margins on account of strong rupee.

******

Dollar buying by banks see Re drop to 43.43/$

Press Trust of India / Mumbai March 29, 2007
Business Standard.

Arresting the three-day strong rally, the rupee today slipped to 43.40/43 per dollar in late morning trades on fairly good buying by banks - suspected to be on behalf of the central bank.

The rupee had climbed to its highest level in more than eight years yesterday following a strong 69 paise surge in the last three sessions due to heavy dollar sales by banks that are facing acute liquidity crunch.

The Reserve Bank of India, which was suspected to have intervened after the rupee neared the 43 per dollar level yesterday, seemed to be active to check the rupee's sharp rise against the dollar, a forex dealer said.

Oil companies, too, were believed to be making month-end dollar purchases as the global crude oil soared to around $64 per barrel.
******
.....and now.

The positive side of the appreciating rupee is clearly evident by the many news reports. The rate of inflation is falling. The cost of oil imports are bound to come down in spite of the fact the cost of oil is touching USD 64 per barrel. We will be spending less now than when the oil was at USD 58 per barrel., because of the appreciation. The Fundamental characteristics of Indian export and imports is our imports are largely physical like Oil, Gold, Diamonds and other goods. Our exports are both physical and service exports. Service exports have outgrown the physical exports and continues to grow. The costs of physical exports are also import based. Service exports are largely human resource based than can always be controlled. Export billing should shift to Euro where ever possible. Therefore an appreciating rupee will always be good for India for both the short and long term. RBI intervention now will be like killing the golden goose.

We will also see heavy remittance from NRIs, PIOs and those Indians who have parked funds in USD. This will accelerate the appreciation of the rupee. If the margins of software companies are "under pressure" either bargain for better prices or give a "decrement" ( I do not know whether such a word exits) to the employees. The Housing and real estate market in the upper segment will cool down. The car sales in the 5 lakhs plus category would decline. Some sense in the labour market would prevail after a long time. Indians and Indian companies investing or buying business overseas will be benefited. Foreign travel will become cheaper. This is especially good for business travellers looking to expand their business.

Indian Rupee will be accepted in more countries world wide than it is today. We will also see many countries building Indian Rupee reserves.

Personal Savings - the back bone of the Indian banking system will continue to grow. We could see a reversal of trend of personal borrowings in the form of credit cards, personal loans, car loans etc to that of savings and investments. Indian Govt was borrowing from World Bank, IMF, ADB etc because of the need for forex and not because there was dearth of savings. This borrowing can be eliminated and stopped. Govt can tap domestic savings by issuing bonds in the market.


Dhakshina Moorthy, K.M.

Forex Dilemma 7

Read this.

Rupee at multi-year high.
PTI[ WEDNESDAY, MARCH 28, 2007 11:40:19 AM]

MUMBAI: The rupee continued to surge against the US currency and touched a multi-year high of 43.1525/1600 a dollar in late morning deals following sustained dollar sales by banks coupled with good capital inflows.

The rupee's surge also was accentuated by the absence of the Reserve Bank of India (RBI), which is expected to check the local currency's rally, a Forex dealer commented.

The central bank is extremely cautious and according to analysts, is wary of making dollar purchases aggressively in the current situation as it could have negative impact on money supply and inflation -- currently at high levels.

Traders feel the rupee is close to touching 43 levels as the cash crunch is likely to remain for some time.

...and now

At last the laws of nature is taking over. Forex reserves have crossed USD 190 Billion. It is like a pressure cooker releasing its safety valve on its own. RBI cannot always intervene. It need not, at least with the present reserve levels. Rs 40 for 1 USD on 1st June 2007 will not surprise me.

Dhakshina Moorthy, K.M.

Forex Dilemma 6

Read this.

Forex reserves up at $194.634 Billion on March 2
REUTERS[ FRIDAY, MARCH 09, 2007 06:00:00 PM]

MUMBAI: The country’s foreign exchange reserves rose to a record $194.634 billion on March 2, from $193.124 billion a week earlier, the Reserve Bank of India (RBI) said in its weekly statistical supplement on Friday.

Analysts attributed part of the increase in the reserves to the central bank's aggressive dollar purchases to protect the rupee's export-competitiveness against other currencies.

The central bank said foreign currency assets expressed in U.S. dollar terms included the effect of appreciation or depreciation of other currencies held in its reserves such as the Euro, pound sterling and yen.

The foreign exchange reserves include India's Reserve Tranche Position in the International Monetary Fund, the central bank said.

...and this.

Buy Indian currency, says HSBC
REUTERS[ MONDAY, MARCH 12, 2007 02:10:21 PM]

MUMBAI: HSBC has recommended to buy the Indian rupee as a jump in foreign direct investment (FDI) in recent months has calmed concerns of funding the country's widening trade deficit. The rupee could rise to 43 per dollar by the end of 2007, a level it hasn't tested since late-July 2005, the London-based investment bank said in a note to clients on Friday.

The rupee was trading at 44.24 to the dollar on Monday.

HSBC said India's central bank, which often intervenes to rein in the rupee to ensure exports are not hurt by a stronger currency, may be forced to let the unit gain.

"It is difficult for a central bank to resist currency strength and also face an overwhelming case for tighter monetary policy," it said.

HSBC also said the rupee was not vulnerable to equity outflows as a recent stock market correction showed.

"Indian rupee is not as highly leveraged to the equity market as the consensus believes. During the recent period, the rupee depreciated by just 1.1 per cent and emerged again as one of the best performing emerging market currencies," it said.

...and now ,

What is Dr Manmohan Singh and team are going to do with USD 195 Billion forex reserve when even USD 40 Billion should be more than sufficient for the next 12 months.

Dhakshina Moorthy, K.M.

Forex Dilemma 5.

Mr P Chidambaram and his team are fighting the effects of Forex Pile up and not the core problem of unnecessary forex buildup at the cost of supporting US Dollar : Rupee pricing. A major surgery has been due for more than 3 years.

Some of the piece meal measures done by Mr PC and team.
1. Govt cuts petrol, diesel prices to curb inflation.
PTI[ THURSDAY, FEBRUARY 15, 2007 02:00:50 PM]
2. Inflation touches a record level of 6.73%
PTI[ THURSDAY, FEBRUARY 15, 2007 02:00:10 PM]
The items seeing huge price rises are numerous as also double and triple digit increases.
It is futile to list them all here.

In his article in " Business standard " Mr A V Rajwade: Worry about the rupee
New Delhi February 12, 2007, he has the following to say.
"Exchange rates may have a bigger impact than interest rates.
There are three important measures of the value of domestic money:
# The inflation rate, which determines the domestic value or purchasing power;
# The interest rate, or time value of money, which measures what savers get or borrowers pay; and
# The exchange rate, which measures the external value of the currency."

Rupee has depreciated from Rs 51 to Rs 59 against the Euro and similar against the UK Pound Sterling. More than 15 % depreciation in two years.

If the Rupee were to be stabilised against the Euro then the USD rate should have been Rs 37.40 . By suppressing the value of the Rupee artificially, by continuously buying USD in the market, when you already have in abundance the import cost of fuel has been increased unnecessarily thereby leading to spiralling inflation. We could have witnessed ZERO inflation for 2 years which is very good for the people, promoting savings, avoiding wasteful expenditure etc. More so, when we have been witnessing steady increase in the interest rates on borrowing from banks Mr PC and team have lent USD 170 billion on zero interest terms by holding their currency as reserves. Holding for import bills is different from amassing mindlessly. Indian citizens are suffering for the foolhardiness of the rulers. USD currency is not even backed by Gold, but only IOUs. It is like issuing cheques without adequate balance in the account - in common man parlance.

Mr PC and team should do the following immediately., at least now.

[1] STOP purchasing USD currency in the markets for the next 3 months., plain speak stop intervention.
[2] Notify that all exports to countries other than USA should be in Euros and UK Pound sterling.

We can expect some good news.

Dhakshina Moorthy, K.M.