Rupee moves in a narrow range Rupee opened last Friday at 48.5250/5450 and slipped initially to 48.5550/56 but recovered thereafter in the face of dollar supplies and closed steady at 48.5250/5350. Most of the mid-day trades took place between the range of 48.5300/5400. Forward premia continued to fall across all tenors with the market expecting domestic short-term interest rates to remain soft & the US interest rates to rise. The benchmark 6-month premium closed at 5.59% compared to Thursday’s close of 5.68%. Call ended flat at 6.50%-6.65% with ample liquidity. The stock market continued its upward trend and the Sensex ended 23 points higher at 3334. India’s forex reserves went up by a mere US$27mln to US$ 49.25bln during the week ended January 25 while inflation edged down further to 1.32% for the week ended January 19. Yen recovers on repatriation spree snubbing positive US data. The Yen recovered smartly on Friday as a drop in the Nikkei index to a 4-month low of 9791 impelled Japanese investors to repatriate Yen to cover their domestic equity losses. Statements from Japanese officials, ahead of the G7 meeting, also helped to invigorate the ailing Yen. The European majors, however, gained marginally against a tired dollar. The US ISM PMI (formerly NAPM) rose to 49.9 in Jan from previous revised 48.1, the University of Michigan Consumer Sentiment index shot up to 93 in Jan (Prev 88.8) while the unemployment rate fell to 5.6% in Jan from the previous 5.8%. The Euro took advantage of the exhausted dollar to regain strength at around $0.8620 with Eurozone PMI rising to 46.2 in Jan from previous 44.1. Eurozone inflation edged up to 2.5%y/y in Jan (Prev 2.1%) placing a wet blanket on expectations of an ECB rate cut this week. Sterling followed Euro’s footsteps to a high of $1.4180 underpinned by a 3rd straight monthly rise in UK CIPS PMI to 46.4 (prev 45.2) triggering hopes of an economic turnaround.

Interbank Indian Rupee Markets Rupees per dollars Spot 1 Month 3 months 6 months 12 months Bank Sells at 48.5350 48.7520 49.2276 49.8960 51.1379 Bank Buys at 48.5250 48.7339 49.2066 49.8710 51.1079

FxForwards Percentages   1 Month 3 Months 6 Months 12 Months USD Libor 1.86 1.92 2.08 2.57 Forward Premium 5.27 5.66 5.58 5.34 Implied Deposit 7.13 7.58 7.66 7.92 Sovereign Zero Coupon 6.76 6.73 6.74 6.76 Arbitrage -0.37 -0.86 -0.92 -1.15

Source: Mecklai Financial Services

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