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Rupees 54.20 – That’s what you get now for every American dollar!

Viral Dholakia — Thu, 15 Dec 2011 08:10:33 +0000

Where sentiment is beaten down and monies are at stake, negative news feeds on itself – be it stock market rumors or speculation on currency fluctuations.

When rupee was quoting at 47 per dollar couple of months back, analysts had projected a target of 50 for the Indian currency. Few weeks back, just as rupee breached the psychological 50-mark against a dollar, forex trackers jumped their gun to 54 levels.

Now that the unimaginable 54-mark has been crossed, a fearsome INR/USD projection of 58 has cropped up from the analyst community, to add to the woes of importers and India’s fiscal position. One after another new downside targets are being achieved at a rather quick pace.

Well, it’s not just the sharp depreciation in the currency value that is concerning the importers, but the pace at which the rupee has depreciated, giving no respite to the naked (un-hedged) importers to cover their foreign exchange risks. Rupee has depreciated by almost a fifth in last few months, posing severe cuts in the importers’ margins.

Even as importers shout for ‘respite’ from the excessive volatility in the currency market, questions are being raised on RBI’s ability to intervene in a strong demand driven market, along with limited reserves of American currency in its forex kitty.

The worsening of the Euro zone debt crisis is not helping the matters either; as foreign inflows have slackened on bleak revival prospects in the emerging markets, in case the global economy goes into a complete tailspin. Currently, rupee value has slumped to all time lows of 54.20 per dollar.

Moreover, it’s not just the importers that get stung by depreciation in the currency; often even exporters are negatively affected by sharp rupee fall leading to rise in travel, wage and power expenditures over a period of time.

Domestically, India’s trade deficit during the eight month period from April to November 2011 stood at $116.8 billion; with imports growing by 30.2% to $309.5 billion during the period. The imports in the first half of the fiscal were largely driven by increasing imports of petroleum, oil and lubricants and precious metals.

The strengthening dollar not only blunts the government’s efforts to tame inflation, but also puts extra burden on the corporate firms that have borrowed money from overseas markets. At individual level, students will have to pay higher fees in rupee terms and bear extra traveling costs for their trip abroad.

Do you feel rupee can really stoop as low as 58 per dollar going forward?

Exchange Rate: Will Rupee touch 50 against the dollar?

Viral Dholakia — Wed, 14 Sep 2011 10:46:26 +0000

A combination of factors such as macroeconomic problems in euro zone, high trade deficit, slowing FII and FDI inflows, and renewed RBI policy of not interfering in the forex market, saw Rupee tumbling down to 2-year lows of Rs.48 per US dollar-mark in early trade today.

You heard it right – RBI has not intervened in the foreign exchange market for a long streak of eight successive months; and has reaffirmed its view that unless the situation is grave and adverse enough for the country’s apex financial institution to check volatility in the currency market, it would continue with its hands-off approach.

One Year Rupee Vs Dollar Exchange Rate Graph

While weakening rupee is beneficial for exporters; it renders imports across import-intensive industries, including petroleum products, costlier for the payments made in US dollars. India is the world’s largest importer of pulses, cooking oil and fertilizers. A sharp depreciation in the value of rupee negates the impact of fiscal measures, such as imposition of export duties to fulfill domestic demand, undertaken by the government to cool down inflation.

Coming back to impact on petroleum products, a dramatic dip in rupee’s value has a negative impact on the economy, not only in terms of expensive imports, but also costlier crude oil prices for a net fuel-importing country like India. With the depreciating rupee, imports of crude oil, edible oil and capital goods become expensive. Higher oil prices puts pressure on inflation.

While weakening rupee benefits exporters in meeting their cost and wage bills better; it negatively impacts the outbound tourist traffic clouded by fluctuating ATF prices pushed higher by the strengthening dollar, which adversely impacts operating costs of airline companies.

30 Day Rupee Vs Dollar Exchange Rate Graph

The purchasing power of rupee vis-à-vis dollar is determined by the demand for and supply of rupee in the international market. Forex dealers have attributed the recent sharp drop in rupee value to concerns related to Europe’s debt problems snowballing into a banking crisis, pushing investors to seek shelter under dollar’s perceived safety.

Today, the Indian rupee opened at 47.78 per dollar, as against yesterday’s close of 47.60, and went past 48 levels for a few early morning trades. Technical forex analysts have maintained that if rupee remains weak below the crucial 48-mark for few more days, the currency is likely to go down all the way to 50 per dollar.

Trade analysts are of the view that India’s high current account deficit and low interest from exporters to sell dollars is gradually driving the rupee prices lower. At the same time, in a risk-off kind of sentiment worldwide, latching on to the dollar is still considered a safer investment bet.

The rupee has depreciated 3% in past 6 days. This unusual fall in rupee value is likely to cost India $11.5 million a day extra against its cost of crude oil imports, which is nothing but a kind of imported inflation. India is equally dependent on imported energy and hydrocarbons.

Market pundits believe that more than weakening of the rupee fundamentals, it’s about strengthening of the dollar that’s playing out over here. People are already invested in Gold until neck deep levels – almost fuelling the price of the precious metal to bubble zone. So, trickling of fresh investments in Gold is much unlikely from hereon. Under such circumstances, it’s quite obvious that the next safely perceived investment destination would be dollar currency.

If rupee continues to slump in the same way for some more weeks, we aren’t far-off from touching the psychological 50 mark to dollar.

[Image Source]

Wow! Rs. 10 plastic bank notes to be a reality soon!

Kaushambi — Mon, 29 Aug 2011 07:11:58 +0000

The Minister of State for Finance Namo Narain Meena on Friday said that the government is going to introduce polymer bank notes on a trial basis. Introducing polymer bank notes, or in simple words, plastic bank notes had been on the Reserve Bank of India’s (RBI) agenda since 2009.

The government has decided that Rs. 100 crore worth of plastic bank notes will be introduced across 5 select locations of the country. All the plastic bank notes in India will be in the denomination of Rs. 10.

What are plastic / polymer bank notes?

Plastic bank notes or polymer bank notes are made from a plastic polymer. They aim to incorporate a lot more convenience, durability and enhanced security features as compared to paper bank notes. If these polymer bank notes are implemented in the Indian system, India will be following the footsteps of Australia, New Zealand and a few other countries on the world in terms of currency notes. At the moment, a total of 7 countries have polymer bank notes in circulation.

How will plastic bank notes in India affect the average person?

If the plastic bank notes in India are made in line and standards of the other polymer bank notes in circulation around the world, they will have the following advantages.

Plastic bank notes are much harder to tear than their paper counterparts. You cannot simply tear away a plastic bank note, it would require considerable effort. So, obviously they will last much longer than normal paper notes.
Plastic bank notes are water proof. So you no longer have to worry about letting your money get wet in the rain or even forgetting money in the pocket of your pants.
Plastic notes are more durable than paper bank notes. This would be a top advantage especially for a country like India where dust and other wear and tear is quite rampant. No longer will you have to argue with a shop keeper to tell him to give you a ‘better note’.
Plastic bank notes are extremely hard, if not impossible to counterfeit. It cannot merely be scanned, copied or reprinted. This is great news for India because no longer will business owners have to worry about counterfeit notes. Plastic bank notes are also power packed with other security features which may not benefit the average Joe, but will benefit government agencies in terms of security and traceability.
The polymer that is generally used in plastic bank notes is a biaxially-oriented polypropylene. This polymer is recyclable. For all you environmentalists out there who are shivering at the thought of plastic deteriorating the environment, calm down because these plastic bank notes will be recyclable.

As you can see, the introduction of plastic bank notes in India seems to be the right thing to do. Minister of State for Finance Namo Narain Meena said that "A final decision will be taken depending on the results of the field trial". Let’s wait and watch!

What’s your take on these Plastic Bank Notes?

New Rupee Symbol can soon be directly typed using a Keyboard!

Arun Prabhudesai — Fri, 15 Jul 2011 15:42:01 +0000

Last year new rupee symbol had been launched – but it was very difficult for online users to use this symbol as there was no dedicated key which was given to the Rupee symbol as it is in case of the Dollar, Euro or the Pound. They had to use a workaround for Rupee symbol to show up on the browser.

Alternatively, there was also a rupee symbol font which was released by Foradian Technologies, that made it possible to use Rupee Font in desktop documents.

But, very soon users can simply type the Rupee symbol using normal computer keyboard. According to announcement by government today, The Indian Rupee symbol can now directly be typed on the keyboard using “Alt Gr” + “4” keys together. The new Rupee symbol has been encoded in Unicode Standard and National Standard ISCII.

Being a standard, all keyboard manufacturers will now have to include new rupee symbol on their keyboards.

You can find more information about the rupee symbol on Indian Govt’s official site

USD-INR Exchange Rate – Is Rupee headed for Depreciation?

guest — Wed, 08 Jun 2011 12:52:00 +0000

[ This article has been written with inputs from Mr. Ashustosh Gupta & Surbhee Sirohi of Financial and Investment Research services firm Evalueserve ]

The USD-INR exchange rate is an important indicator of investor sentiment and can significantly impact not only the fortunes of individual firms and sectors, but also the government.

While this exchange rate has been very stable overall for the last five years, there have been periods of significant volatility. For example, USD-INR moved from 40 to 51.50 from March 2008 to March 2009. We believe there is a significant downside risk to USD-INR exchange rate and will explore some of the risk factors here:

Inflation is at an all-time high; the Consumer Price Index (CPI) increased by 10.88% in 2009 and by 13.19% in 2010. The monetary policy changes to control inflation have been ineffective. We believe this is because inflation is being driven primarily by structural supply side challenges such as lack of agricultural infrastructure, low crop yields, low organized retail penetration, and lack of import buffer for staples such as pulses where India is one of the main producers worldwide.

India as one of the fastest growing economies should be a favoured destination for investment. Nevertheless, it witnessed a decline in Foreign Direct Investments (FDI) in 2010, making it the only BRIC country where this happened. This is troubling as FDI is an important indicator of investors’ faith in a country’s long-term prospects. Foreign Institutional Investment (FII), which provides short-term portfolio investment money inflows, has been buoyant, but these funds are volatile by nature and are prone to “flight risk”, something that happened during the financial crisis.

Recent widespread corruption scandals have reinforced the negative perception of governance deficit in India. This, combined with regulatory and tax uncertainty, will deter foreign investors. For example, several global firms who invested in India’s telecom sector have had to write off billions of dollars of their investments.

A major source of foreign currency inflows to India is remittances; India received USD 55 billion in remittances during 2010. The Middle East accounts for a major share of this inflow and the current turmoil in the region may negatively influence it.

The combined central and state government deficit has stubbornly stayed around 10% of GDP. Another major concern is that India imports about 70% of its oil and efforts to increase the production capacity of petroleum and natural gas domestically have not been very successful.

India’s current deficit is about 3%, the level it reached during the crisis of the 1990s. A current account deficit is not bad by itself for a growing economy if it helps build important long-term productive assets. Unfortunately, some of this money already seems to be feeding speculative real estate activity instead. This is exacerbated by the fact that the more volatile FII money (and not the more stable FDI) is funding the current account deficit.

The US economy seems to be on the path to recovery. It is very likely that the improving US economy will draw more funds at the expense of emerging countries. This can already be seen in the FDI inflows, which increased by 43% in 2010.

After studying the various demand and supply factors for the Rupee, we have arrived at three likely scenarios:

First Scenario – Rupee Depreciation

This scenario is likely to occur if oil prices continue to rise or if FII money “exits” because of a crisis of confidence. Based on past evidence, even a relatively orderly outflow of USD 15 billion of FII money over a year could result in the INR depreciating by 22–30%. This would imply an exchange rate in the range of INR 55–60 to USD 1. It could get even worse if the flight of capital were to take place over a shorter period. This would imply a higher cost of petrol, diesel, and petroleum products in India, leading to even higher food prices and Consumer Price Index. The current account deficit would balloon and the rising inflation could create a vicious cycle.

Second Scenario – Rupee Appreciation

This scenario is likely to occur if the FII money continues to flow in and FDI levels improve. An appreciating Rupee will make imports cheaper and lead to better managed deficits and inflation. The flip side is that Rupee appreciation would erode India’s cost advantage in the export sector especially the booming ITES sector and likely invite government intervention. This is what happened just before the onset of the 2008 financial crisis when the USD-INR touched 39 and the Indian government repeatedly intervened in the currency markets to halt the Rupee appreciation.

Third Scenario – Status Quo

This is the most benign scenario. The exchange rate continues to move in its current range and slowly appreciates over the long term as the economy continues to develop and India strengthens its position in the global markets. The government’s efforts to improve agricultural infrastructure bear fruit in the longer term and inflation declines. Exchange rate fluctuations do not cause any major disruption in the trade environment.

According to our analysis, during the next two years the probability of the first scenario (depreciation of Indian Rupee by 20%) is the highest (about 50%) while the other two scenarios have an equal probability of approximately 25% each. In other words, there will be pressure on the Rupee unless steps are taken to fix structural issues described in this article. The Indian government and RBI are well aware of this risk and are definitely hoping for the third scenario, in which India essentially grows its way out of trouble over a couple of decades and where they only have to intervene occasionally to smoothen out excess volatility. As Subir Gokarn, a deputy governor of RBI recently said, “Intervention is not costless; it simply transfers the cost from one constituency of the economy to another.”

Vodafone Steals WebRupee’s Font Without Acknowledging It!

guest — Sun, 23 Jan 2011 13:00:52 +0000

In a country where Cyber Laws count for nothing and licenses are a joke, there was yet another breach of license, this time by telecom giant Vodafone Essar. The company recently used a font, known as Webrupee [we had covered webrupee when they launched], which was recently developed by two bright young techies from Pune, on their website and the blatantly changed the font name and removed the licenses (Apache version 2).

Screenshots of Vodafone font usage

All this is shameful because all these changes to the font were made knowingly and thus you can’t even call it an accident. It’s sad that deserving talent cannot get their due credit just so that an already burgeoning corporation may save a buck here or there.

And this is a country which is touted to be the IT hub of the world. Imagine what would’ve happened if someone used Vodafone’s logo, for their own profit, without acknowledging them. There would’ve been a massive lawsuit right there.

You know as they say, people who live in glass houses should not throw stones. I’m not trying to incriminate Vodafone for their breach of license but would rather have the spotlight on the bigger picture; with the recent success of the movie, "The Social Network" which treads along the lines of copying code and the likes, it wouldn’t make one bit of a difference if due credit was given to the deserving, not just in Vodafone’s case but in anyone else’s.

Even people who upload videos on Youtube, without the license, acknowledge the license holder’s rights and mention a bit here and there. Today, it’s Webrupee. Tomorrow, it may be your band’s song used in their advertisement. Let’s hope it doesn’t come to that.

Credit goes to Aman Jain and Meher Ranjan (Creators of Webrupee) to finding it out.

Hat-tip by Amiworks and post written by Tanmay Jadhav

Inflation forces 25 paise coins out of circulation!

Arun Prabhudesai — Mon, 03 Jan 2011 16:17:54 +0000

Inflation has kind of become a Yamraj (the god of death) – It is gaining in strength day by day and taking a toll of things. Obviously, you have heard of onions touching close to 60 rupees a kg and Garlic going upwards 300 rupees a Kilogram.

Now, with those rates you can imagine what value does the humble chaar ana (25 paise coin) have in today’s world. Absolutely nothing!

Infact, the only ones who are now benefitting from 25 paise coins are the scrap dealers. They can now melt the 25 paise coins and even if they sell it as raw steel, they get more money. In short, the cost of manufacturing a 25 paise coin is much higher than its actual face value.

So, the government has now decided to kill the 25 paise coins. According to the latest announcement by the Government, all the coins of denomination of 25 paise and below, issued from time to time, will go out of circulation with effect from June 30, 2011.

Consequently, from June 30, 2011 onwards these coins will not be accepted in any transactions. The minimum denomination coin acceptable for transaction will be 50 paise from that date.

Also, in accounting, i.e. the entries in books of accounts, pricing of products / services / taxes shall also be rounded off to 50 paise or whole rupee from that date.

Any bets on how long will 50 paise coin survive ?

Dollar Rupee Exchange Rate – Where is it heading?

Viral Dholakia — Tue, 28 Sep 2010 12:36:17 +0000

Indian stock markets are soaring to new highs week after week leading to enhanced inflows into the country, and consequent appreciation of Rupee vis-à-vis the Dollar. Appreciated rupee exchange rate means that you can buy more from spending in the international market for same amount of Rupees.

However, inflows from Foreign Institutional Investors (FII) are not the only determinant of the exchange rate of a country. A number of additional inflow parameters – primarily from remittances, export of services and capital flows and even Foreign Direct Investments (FDI) – could send the rupee spiraling in terms of dollars.

Though, the term ‘appreciating Rupee’ sounds music to our ears – further reposing our faith in the India Growth story – but, in reality, a steep unabated surge in the rupee value could erode India’s export competitiveness and fuel higher inflation in the domestic economy.

Most of us are aware that sudden out-flows often lead to unwanted volatility and sharp fluctuations in the exchange rate markets. However, the other way round also holds true – wherein steep inbound flows could hit the market by way of fuelling asset bubbles and instability in demand-supply parameters.

During the last one year, the global recovery from the slowdown has led to dollar flood threatening to become a deluge, leading to heavy inflows into targeted economies, like India, where growth outlook is positive. Under such instances, RBI intervenes in the exchange markets to arrest capital inflows with the aim to keep market adequately supplied and holding inflation in the desired range.

Rupee vs. Sensex

Now, let us compare as to how Rupee has fared in comparison to the performance of stock markets over the last couple of years. Though, the comparison is not legitimate – and sounds like comparing an Apple with a Mango – there is a remote co-relation which I wish to strike over here.

The USD/INR had touched a high of 39 during the previous phase of Sensex 20,000 touched during January 2008. On the flip side, the exchange rate had hit a trough of 52, at the height of pessimism, during the first quarter of 2009. Thus, the exchange rate fluctuated in a broad range of 52-39 during the height of optimism and pessimism.

However, with the bellwether Sensex again rebounding to a magical 20,000-mark, the USD/INR rate is still lingering mid-way around 45-mark.

This contrasting scenario of USD/INR-value when compared with the steep inflows during the congruent peaks of the bull markets at different time intervals; indicates as to how Rupee has actually under-performed the movement in equity markets by a huge margin.

More recently, the USD/INR rate has remained ranged bound from 44.50 to 47.50 during the last 6 month duration. The USD/INR needs to catch up with the lagging indicator in the times to come.

Do you feel Rupee has more aggressive legs to run the marathon from here?

USD Vs Gold – The Price war

guha — Thu, 23 Sep 2010 15:05:32 +0000

The developed economies are under turmoil; reports indicate that Aug 2010 recorded highest number of mortgage foreclosure for the month in US. However gold seems to be going strong in it’s pricing undeterred by US economy.

In the last two decades, the heavy weight battle is gaining momentum, the trend shows it is between USD Vs Gold, particularly when compared with Indian currency.

In the early nineties, India had balance of payment crisis, which made them to pledge gold to IMF for a loan. I still remember, the exchange rate of US Dollars was in the range of INR 20 per dollar and we used to fill motorcycle tank at Rs 20 per litre and 1 gram of 22 carat gold was in the range of 200~250 INR. The early nineties was the time, when talk of globalization started and India started opening up its market. The telecommunication started picking up, the snail mail OR postal mail gave way to Fax mode of instant communication.

If one looks at the chart, the gold prices in US Dollars from 1985 till about 2002, it was relatively stable. It had been in the range of 200 US Dollars to 400 US Dollars per ounce (10 to 14 USD per gram). This had been the period when US Dollars was considered precious, every country wanted to boast its foreign reserve currency in USD and interestingly this also made US Dollars to claim high which kept gold rate in check. In the period of 1990 to year 2002, USD had appreciated almost 2.5 times, from about 18 INR in 1990 to about 48 INR per dollar in 2002.

Gold Price Movement – 1985 to 2010

Following period of 2002 to till date, US Dollars has been losing steam and more or less a cooling off period for USD. Again, this is when the other heavy weight commodity like gold started gathering steam and winning the price war against USD. Its was about 10~14 USD per gram even in 2000, now its has claimed to be at all time high of about 40~42 US dollars per gram.

Whenever USD appreciates, it bound to have inflationary effects in Indian economy but its indirect. The reason being, common man is not worried about appreciation of USD as compared to Gold and he does not invest in USD.

Question in any Indian mind is, will gold prices reduce or stabilize in near future? Looking at the trend it does not look so, with the world reserve currency – US Dollars seems to have lost out the race.

Not only individuals, but also even country governments consider gold as the safe bet, now. So till a time, there is an alternative to gold, where money can be parked as reserve currency, the "Gold" should be winning, the price war. A recent study by Asian Development bank, predicts China currency Renminbi becoming the reserve currency in the near future.

This might spin off another debate as 18^th Century belonged to Germany / France, 19^th Century to Great Britain, 20^th to US –

Will the 21^st century belong to Asia?.