Financial Daily from THE HINDU group of publications
Tuesday, Nov 04, 2003
Money & Banking
Stanchart predicts dollar at Rs 43.5 in one year
Chennai , Nov. 3
STANDARD Chartered Bank has said that the Indian rupee will appreciate further. In a year from now, the Indian currency could rise to Rs 43.5 to a dollar, according to Dr Gerard Lyons, Chief Economist and Group Head of Global Research.
Dr Lyons said that depreciation of the dollar need not be a cause for concern for any country.
The dollar had gained about 40 per cent against other major currencies between 1995 and 2002. Against this, the dollar has depreciated 10 per cent against all currencies and 20 per cent against currencies of industrialised countries.
"The dollar will always remain the reserve currency of the world; the euro will collapse in 30-40 years."
Dr Lyons also said that the Indian economy was expected to perform well this year.
According to him, the only two major worries about the Indian economy are the possibility of a "reversal (rise) in bond yields" and fiscal deficit going out of control.
"At present, there is a concentration of risks in the bond market," he said, meaning that most investors have put money into bonds anticipating declining yields. (If interest rates go up, the bond yields will go up, and the market value of the bonds will go down. Investors could lose money.)
However, he stressed that it was not his (or the bank's) view that the bond yields will rise but "only a worry. Never underestimate risks."
According to Dr Lyons, there was enough liquidity in the banking system and it may not be necessary for the RBI to inject further liquidity into the system. (Dr Lyons is scheduled to meet with senior officials of the RBI on Friday).
Standard Chartered Bank is optimistic about India and wants to raise the number of its branches in the country to 100 from about 80 now. However, the bank has no timeframe for doing this.
Dr Lyons expects oil prices to stabilise around $25 a barrel by the second quarter of next year. Countries such as Nigeria may not want to adhere to OPEC's production cuts. Also, the production from Russia would also be a factor in oil prices.
Giving a perspective on global economy, he said that there were three broad themes. Firstly, the immediate growth outlook was positive. In the next 12-18 months, US would grow and that growth would crank up European economy, just as China's growth is cranking up Japanese economy.
For the first time since 1990, Japan is seeing positive growth, led by the private sector.
According to Standard Chartered Bank's forecast, Japan could grow by 2.5 per cent this year. The yen would continue to be strong. Today, 39 per cent of Japanese companies' production is outside Japan, compared to 19 per cent 10 years ago. Therefore, Japanese companies have a greater ability to handle a stronger yen.
Secondly, global economy is still fragile, with regional imbalances, and "policy is the key to growth". The two major growing economies would be the US and China and other countries would have to "position themselves" to be able to use the opportunities provided by these two economies.
Thirdly, regional trade driven by regional trade agreements will happen more.
The US is looking at the Americas, developed Europe, Eastern Europe and Asian countries for trade. "Asia might outperform other regions."
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