Monday, October 19, 2009

Interest Rate, Currency Update

Dated : 19th October, 2009

India

Bank Rate - 6.00%
Repo Rate - 4.75% (Rates at which banks borrow from RBI)
Reverse Repo Rate - 3.25% (Rates at which RBI borrow from banks)
CRR - 5.00%
SLR - 24.00%
PLR - 11% to 12%
Savings Bank Rate - 3.5%
Deposit Rates - 6.5% to 7.75%
Call Rates - 2.0% to 3.30%
182 days Treasury Bills - 4.05%
BSE Sensex - 17195

Major Exchange Rates

INR vs USD - 46.20
INR vs Euro - 68.69
INR vs GBP - 75.55
INR vs SGD - 33.18
INR vs JPY - 0.508

World Interest Rates

JPY - 0.1%
USD - 0.25%
Euro - 1.0%
GBP - 0.5%
AUD - 3.25%
NZD - 2.5%

Outlook

US recovery is seemingly round the corner, but is it true or we are seeing the effects of stimulus package. If it is as a result of the stimulus package then it would be interesting to see what happens when the money’s are being returned to the Government.

As regards US Dollar the currency is still weak and depreciating against major currencies in the world. Indian Rupee will remain strong due to higher foreign exchange reserves and higher foreign currency inflow.

Tuesday, October 13, 2009

Divident Distribution Tax - Section 115O

Dividend is taxable in India under section 115O of the Income tax Act, 1961. Effective rate of Dividend Distribution tax from 1st April 2007 is 16.995% (15% basic rate + 10% surcharge + 2% education cess and 1% higher education cess). This tax cannot be avoided on payment of dividend, even if no income tax is payable by the company on its total income.

This dividend distribution tax (DDT) should be paid within 14 days of declaration of dividend or distribution of dividend or payment of dividend whichever is earlier.

This dividend distribution tax has bigger implications for attraction of foreign investments given that ultimately the effective tax rates on profits work out to 50% considering income tax of 33% and dividend tax of 16.995%. There is a strong case to reduce / remove this DDT if India has to emerge as a major destination for attracting foreign investments.

Outlook on Rupee for the Medium Term of 6 months

During the last 5 years INR has been in a range of 44-46 except for a few patches of 38 in 2008 and above 50 during beginning of 2009. Currently in October it is back again into the familiar territory of 46.

Outlook for INR vs USD looks bullish and would remain in the territory of 44-46 upto March 2010. This view is driven by the fact that India has a strong forex reserve of USD 280.3 billion (for the week ended 2nd October, 2009) and higher dollar inflows from overseas. Further IIP for August showed robust growth of 10.4% and a healthy stock market which has crossed 17,000 points also paints a rosy picture for the currency market. The above factors will weigh down the import demand for Dollars and Dollar recovery overseas due to the talk of end in economic recession in the US. Though there is talk about increase in interest rates in the US, it may not see the light of the day soon, and hence there is a strong case for rupee appreciation or staying put at levels of 44-46 upto March 2010.

Forward Premium is at 0.13% for 1 month (quoting at 46.70) and 1.48% for 6 months (quoting at 47.33) which reflects the sentiment that rupee will be in a short range and there are strong indications of the same appreciating.

Monday, October 12, 2009

Major Interest Rates in India and World

Date : 12th October, 2009 - Monday

India
Bank Rate - 6.00%
Repo Rate - 4.75% (Rates at which banks borrow from RBI)
Reverse Repo Rate - 3.25% (Rates at which RBI borrow from banks)
CRR - 5.00%
SLR - 24.00%
PLR - 11% to 12%
Savings Bank Rate - 3.5%
Deposit Rates - 6.5% to 7.75%
Call Rates - 2.15% to 3.35%
182 days Treasury Bills - 3.8%
BSE Sensex - 16642

Major Exchange Rates
INR vs USD - 46.53
INR vs Euro - 68.50
INR vs GBP - 73.73
INR vs SGD - 33.36
INR vs JPY - 0.517

World Interest Rates
JPY - 0.1%
USD - 0.25%
Euro - 1.0%
GBP - 0.5%
AUD - 3.25%
NZD - 2.5%

Outlook
With the global economy showing signs of revival (or that is what being predicted), time will not be far away to see firming up of interest rates again.