FOREX:
Rupee touched five year low against the Dollar in September 2008 on economic slowdown and lack of inflows. The movements in Dollar turned out to be rapid against the Rupee during the month as global financial turmoil gripped the market. Major financial banks and insurance companies filed bankruptcies or were sold out in order to save their existence. Central banks across the globe steeped up to infuse liquidity in the jittery financial markets. The firm tone of Dollar made the importers worried including the Oil marketing companies which had earlier thought of some respite after the price hikes in petroleum products by the government in previous months. Rupee lost sharply in the initial days of the month and further impetus was provided at the end of the month.
The rise was on account of gradual shrinkage in global oil output. OPEC's decided earlier in the month to cut production by 520000 barrels a day, militant threats to Nigerian oil supplies and output shutdowns and damage to oil installations on the Gulf of Mexico coast caused by Ike and Gustav helped spark the jump in oil prices.
Equity markets were dull due to disarray in global financial markets and FIIs frail response. FIIs data showed lack of buying interest but some pull back in Inflation can bring relief in the markets. Bears are still gripping the markets during the month ending on liquidity concerns. Rupee settled the month at 46.94 against the Dollar.
From RBI front, Duvvuri Subbarao substituted Y.V Reddy as the new governor of RBI.
Rupee vs Dollar:
The Rupee touched a low of 46.94 on 29th September 2008, its lowest since 2nd June 2003 and a high of 44.21 on 1st September 2008. Rupee depreciated by 7.19 % against the Dollar during the month. FOREX markets were volatile as the demand for Dollar increased from the banks which entered in swap agreements buying Dollar in spot markets and selling them in forward markets. Dollar demand from Oil companies capped the rise of Rupee and pressurized the domestic currency. Most of the Oil companies and importers were in open market in search of Dollars. Oil companies were earlier using the special window by RBI to buy foreign exchange but that facility by RBI came to an end bringing the companies to search dollars in open market. Crude Oil lost the show as demand got feeble by the US economic concerns and piling inventories. However, the supply disruptions due to tropical storms Gustav and Ike muted the fall. OPEC also cut the supply cartel in order to reduce the speed of fall.
The Indices of Industrial Production (IIP) data released for the month of July 2008 showed a increase on a monthly basis. The IIP for the Mining, Manufacturing and Electricity sectors stood at 164.9, 293.3, and 225.9 respectively, in July 2008 with the corresponding growth rates of 5%, 7.5% and 4.5% from July 2007. The IIP for the Mining, Manufacturing and Electricity sectors stood at 163.2, 289.8, and 217.1 respectively in June 2008. The cumulative growth during April-July, 2008-09 stood at 4.5%, 6.1% and 2.6% in the three sectors over corresponding period previous year.
Ministry Of Commerce Foreign Trade Data showed the burgeoning problem of Trade Deficit in India with Crude oil imports remaining strong. India’s Foreign Trade Statistics for the month of July 2008 showed a rise of 48.1 % in imports to $ 27143 million as against $ 18333 million in July 2007. Exports during June 2008 were valued at $ 16345 million, 31.2 per cent higher than corresponding period previous year. Oil imports were valued at $ 9480 million up 69.3 % on a y-o-y basis. Oil imports for the corresponding period last year were $ 5600 million. Oil imports during April-July 2008 was at $ 35006 million, 55 % higher than oil imports valued at $ 22596 million in the corresponding period last year.
Rupee Vs Other Major Currencies:
July month turned out to be depressive for Rupee against other major currencies. Rupee ended at 67.79 against the EURO, during this period Rupee lost 5% with a high of 63.33 and a low of 68.11. Pound gained 7% against the domestic currency. Rupee started the month at 79.76 against GBP on September 2008 and ended the month at 85.57 on 29th September 2008. During the month, Rupee touched a high of 78.09 and a low of 85.92. Rupee also lost momentum heavily against Yen. Rupee started at 40.76 against the Yen and ended the month at 44.49, thereby marking a fall of 10 % against the Japanese Currency.
Financial System Derails On Sub prime Front:
Major investment banks faced the heat on account of Sub prime losses These jitters shook the Wall Street and other major markets including India. Barclays Plc announced that Lehman brothers have begun to re-open for businesses under the ownership of Barclays capital. The actions were followed after the bankruptcy court approved Barclays agreement to acquire Lehman brothers. In another major event, Bank of America Corporation agreed to acquire Merrill Lynch. in a $50 billion all-stock transaction. AIG got a new lease of life from the Federal Bank.
Federal Reserve Bank of New York provided a two-year, $85 billion secured revolving credit facility to AIG that ensured that the company can meet its liquidity needs. American International Group posted its biggest-ever quarterly loss, after being hurt by a write-down of securities exposed to bad mortgage investments. The world's largest insurer posted a $ 5.29 billion loss, the largest in the company's 89-year history. To make matters worse, Mitsubishi UFJ Financial Group announced that it will buy a 21% stake in the second-largest U.S. brokerage Morgan Stanley for $ 9 billion.
India also felt the shocks on Sub prime front. ICICI Bank's overseas operations reported a loss of 264.34 million dollars following the sub-prime crisis. Central banks across the globe announced coordinated efforts to pump massive amounts of liquidity into the financial system to ease pressures. Federal Bank and Finance ministry of the US also urged the congress to pass a $ 700 billion bailout of beleaguered Wall Street banks. But the bailout plan met with stiff opposition from the lawmakers. The U.S. Congress rejected the financial rescue plan on 29th September 2008, which sent the Dow Jones tumbling 705 points shortly after the break of the news. Later on the plan got accepted, yet it left lawmakers with several questions to be unanswered. One big question is What happen if more banks emerge on the bankruptcy front?
Outlook:
Rupee is now at its 5 year low against the Dollar, situation is likely to remain the same in days to come. RBI will be intervening in the markets to check the fall in Rupee. On the other hand, weak data from the US is slowly turning the tide against greenback. The bailout plan of $ 700 billion which would have provided some heal to the financial markets was rejected. Now US will try to support its jittery financial system by other measures. One such measure will be the cut of interest rates. This will ensure some liquidity pumping in the system but will also affect the Dollar adversely. Rupee is not likely to gain from the regime due to the fact that inflation is still not showing signs of easing down and commodities prices are on a high. Therefore widening trade deficit will keep the Rupee checked on every rise.
