Worries on rupee8217;s

Crude oil prices, which are down some 13 per barrel from decade highs of 37 hit last year, were mainly responsible for the rupee8217;s slide in 2000. Oil imports leapt nearly 83 per cent to 11.35 billion in April-November 2000 over the year-ago period. They accounted for more than 32 per cent of India8217;s total merchandise imports during this period. But while pressure from this factor had ease, there were other pressure points, some traders warned. quot;The key to my mind is foreign capital inflows,quot; said the treasury head at an American bank.

quot;We were rescued by the India Millennium Deposits this time but this kind of inflows may not be easy to repeat,quot; he said, referring to a foreign currency deposit scheme by the State Bank of India SBI in October/November. The scheme raised 5.5 billion and boosted India8217;s foreign exchange reserves, sharply depleted by central bank efforts to meet market demand for dollars. Reserves, on the upswing since the SBI overseas deposit inflows started in November, hit a new peak of 39.807 billion on December 22.

Analysts said the higher level of reserves would give the central bank enough ammunition to guard its currency from unexpected shocks. Over the longer term, however foreign inflows would depend on export growth and the speed at which India removed impediments to foreign investment, they said.

Exports grew 20.56 per cent year-on-year to 28.61 billion in April-November 2000 compared to a year earlier, while imports grew only 14.44 per cent in the same period. Among imports, the non-oil segment declined 3.13 per cent year-on-year in April-Novermer, reflecting a sluggish economy.

Euro strength to help, regional currencies worry
Analysts said the dollar8217;s shedding some of its strengthagainst the euro and sterling was favourable for the rupee as it reduced the need to adjust downwards to reflect its value on a trade-weighted basis.

quot;With the euro8217;s weightage close to a quarter in the realeffective exchange rate REER, the strengthening euro would help remove some pressure on the rupee,quot; said Vasan Shridharan, Singapore-based treasury economist at Standard Chartered Bank.

Some currency dealers saw a looming threat in the weaknessof regional currencies against the dollar. India competes for its exports mainly with countries from South and South east Asia, whose currencies have weakened against the dollar recently.

Headline inflation which has risen to its highest levelsince November 1995, was not yet a cause for serious concern although it would bear watching, traders said.

The rate has risen sharply, mainly due to two hikes ingovernment-set prices of petroleum products in 2000, to reflect high global prices.

quot;With global crude prices coming down, maybe we8217;ll see thegovernment reverse some of the hikes and inflation will then come down,quot; said the foreign bank trader.