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October, 2004 |
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Economy & Policy |
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June 01 Re-visited in Sept. 04
September 1, 2004 was as shock ing as
June 2001. The brutal kill ing of 12 Nepalis at the hands of barbaric
terrorists in Iraq and the damage (physical and psychological) caused by
the subsequent silly outrage in the city of Kathmandu were similar to
the heart rendering massacre of late King Birendra and his family and
the reactions of the Nepali crowd. As times passed on, June 2001 now
seems like ancient history. Nepal is now a country entangled in other
deeper difficulties. Time will continue to go by and before long, the
sad demise of twelve innocent Nepalis could also fade out of our
memories. In addition, the Maoist diktat closing
nearly fifty large and small of businesses for almost a month will also
be forgotten and buried under the daily routine of market share and
market collections, yet, Nepali businesses either big or small must
learn a number of lessons from that Black Day and the Black Month. Foremost in the list - Unprincipled
business will take us nowhere and in most certain way lead to disaster.
Even those who did not participate in the mayhem of 9/1 were clearly
very critical of the manpower supply companies and they believed that
these 12 naïve Nepalis were tricked to enter Iraq and regarded the
entire industry of manpower agencies cohorts in this episode. Though the
wrath of the public was apparently directed to the offending agencies,
even those doing the business in a fairly professional manner were not
spared. Lesson here - it is not enough just being
fair oneself, the business fraternity must work towards improving the
general standards and thereby enhancing positive image of the entire
sector. The principal Corporate Social Responsibility of businesses is
to make money in an ethical way. Let this belief guide our industry
mandarins in the times to come. In Nepal, over the years we have
developed a culture where promises are just promises and nothing more.
So is the ongoing government promise to provide security. Another lesson
here – ingrain the need of securing our businesses in our systems. The
United Kingdom has the highest density of security CCTV in the world and
as the cost of CCTV is coming spiraling down, maybe it is time to look
down that alley. Ingraining security in our system means not just CCTVs,
time has come to develop procedures and process to secure our documents,
data and records against such events. Threats are not just physical
violence, it could very well be electronic. Most of doyens of Nepali
business community continue to view organized “Security” just as
another cost head and a showpiece at the main entrance. 9/1 proved just
the opposite. During these uncertain times, it may
sound too simplistic to argue for enhanced employment opportunities for
the citizens within the country, yet, there is no denying this
obligation if we are to survive as an Economy. Private sector is too
important a stakeholder to ignore employment stability in the nation. The en-masse labour immigration
nonetheless, may be justified as a short-term remedy to the problem of
unemployment pertaining to the present conditions, however, it is too
much of a gamble to let the country ride on the remittance that is
solely dependent on the socioeconomic and political variables of an
unfamiliar foreign shore. Khetan Group was quick to respond to this
unfortunate circumstance and offer a relief for the families of the
victims in Iraq by offering employment. While this is an appreciable
move, the entire business community should devise a longer-term strategy
collectively so that such incidents are avoided in the future. Furthermore, develop country’s human
capital and make the skills of our manpower relevant and saleable in
today’s dynamic globalised economy. We need to urgently re-orient our
thinking and adapt fast to the changed realities that is affecting our
everyday life. Even today scores of school and college students are
growing with narrow political ideology and this gives higher prominence
to political rhetoric rather than developing competitive skills. Till
this trend is reversed and our worth is assessed based on the real value
( not just paper degrees and diplomas) we bring along to our workplace,
our unemployment problem will continue to bog our national stability and
our national prestige. Finally, to accomplish all these, we need
an enabling environment and the end word there is peace. Period. Peace. US Dollar: The Federal Reserve increased the FED
Funds rate by 25 basis points taking it to 1.75%. The question now is
how far and how long would the FED go? The US economy is still under
pressure and so is the US dollar and after the latest interest rate hike
to 1.75%, the dollar has come under immense pressure and any further
rate hike would have to be supported by a very positive data on
employment, retail and trade balances etc. The US dollar is under
pressure due to the large current account deficit, trade imbalance and
to further add to its woes is the rising oil prices due to violence in
Africa and Middle East. We maintain that any further unwarranted
rate hikes without visible positive data's would take its toll on the US
dollar hitting it down to major crosses such as the Euro, Sterling and
the Aussie dollar.
Japanese Yen: The Yen remains one of our favorite
currency making minimum moves both ways due to gathering momentum in the
economy. However raising oil prices remain a concern for Japan as it is
one of the largest importer of oil and oil products. The appreciation of
Yen now depends on slowing oil prices, which in turn would benefit the
industrial sector. Thus we would see much movement in the economy.
Japan's economy is doing well and growth is seen at 2% pa. The Yen has
been trading within the band of 109.45 to 110 but we still remain
bullish on the Yen on account of strong capital inflows in the equity
markets. We see Yen at 108.50 in few weeks.
Euro: This was the currency which was to take a
major hit while the FED continued its rate hike but the currency has
managed to hold on. We expect no major positive data within the US
economy, which keeps us bullish on a stronger Euro in the near term.
Euro Zone export led growth is on track and industrial output too is
high with strong demand coming from China and other Asian countries.
Euro Zone central banks are close to rate hikes whereas Fed is closed to
pause in rate hike. The Euro looks stronger in near term and we see this
currency at 1.2450 - 1.2520 whereas any positive comments from Federal
Reserve may undermine the currency to 1.20 level.
Sterling: The currency has made volatile moves with
no fundamentals as housing market looks quiet and cooled retails sales,
consumer confidence are slowing but still the currency managed to break
levels from 1.78 to 1.82. The rise was due to selling pressure ahead of
US data releases and increase in EUR/GBP trading volumes. Housing
statistics show that demand has remained weak thus causing no further
rate hike thus sterling remains vulnerable to another low towards
1.7800.
Australian Dollar: In the current scenario, a favorite pair
which has broken all levels is AUD/USD. Guided by strong fundamentals
within the Australian economy, consumer confidence remains high, and
yields are better than other countries. We expect another rate hike
after the October 9 election thus increasing the spread between US
interest rates. Thus with high yields and commodity prices on a high,
calls for a stronger AUD at 0.73 level soon.
Indian Rupee: With GDP this quarter at 7.4% as compared
to 5.4% last year for the same period looks like growth is on track and
investors are positive on India as market uncertainty following the
change in government are unwinding and the government looks to comfort
the market with implementing all budget announcements for FDI in telecom
and aviation sector. The Indian stock market is again touching
pre-election levels moreover nearing 6000 sentimental mark. Thus with
strong corporate earning and great fundamentals to drive the economy we
see INR at 45.00 in near term. Domestic Currency: Nepali rupee was seen trading stronger
during the month as INR appreciated against the US Dollar to some
extent. Nepalese Rupee appreciated by 40 paisa during the month but
apparently lost 25 paisa towards the month-end. Accordingly, the USD/NPR
which started trading at 74.95 for the month traded high at 74.55 during
the month but ended at 74.80 for the month of September. As the market
demand and supply matched within the inter bank market, the Central Bank
did not intervene in the market either way during the month. As in our INR forecast, NPR too would be
on a correction mode in near term but the oil price trading towards all
time high (50 dollars per barrel) is not letting the INR appreciate
against the US dollar as expected.
Local Market: T-Bills and Money Market: 91 days Treasury bills which started at
0.5736% pa in the beginning of September 2004 ended trading lower at
0.2671% pa at the month end. This was mainly due to the excess liquidity
prevailing in the market. However NRB has floated T-Bill auctions of
varying maturities ranging from 7 days to 355 days on 30.09.2004 and
04.10.2004. The total amount of auction floated is in excess of ten
billion rupees. This huge surprise issue of T-bill combined with the
expected heavy cash withdrawals for upcoming Dashain festival, rupee
rate is expected to move up sharply towards 5 % for longer term and
3.50% for shorter term. For the first time in the history of call
money market in Nepal NRB has introduced system of reverse repo. The
first such issue which came up on September 28, 2004 was absorbed by the
market at 0.18 %. The second reverse repo of NPR 1 billion floated on
30.09.2004 was traded at 1.1289%. Inter-bank call money rate traded
between 0.25% pa - 0.70 % pa during the month of September. However with
the above huge issue of T-Bill, Inter-bank call money rate is expected
to be around 2-3 % within next week. With the T-Bill issue in excess of
ten billion rupees, the 91 Days T-bill rate is expected to move up.
Accordingly, SLF (standing liquidity facility) is expected to be above
3.00 % in the first week of October and onwards. (Material provided by Nabil Bank) Disclaimer: This publication is for information only and is not to be construed as an offer to buy or sell investments. Nabil Bank Limited, whilst considering the contents to be reliable, takes no responsibility for any individual investment decisions based thereon. |
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