Care sees Re falling to 65, forcing Rajan to hold rates in Jun

Expecting the rupee to slide further to 65 against the dollar, domestic rating agency Care Ratings today said Reserve Bank Governor Raghuram Rajan may opt for a status quo on rates in the June 2 policy review.
"Combining this development (depreciation of the rupee) with the recent increase in price of crude and a sub-normal monsoon forecast, Rajan may wait longer before the next rate cut," it said in a note.
The rupee had hit a 20-month low at 64.23 yesterday, though it regained some lost grounds today by rising to 63.93.
Without giving a time-frame, the report said the rupee may slide further to 65 against the dollar and added 63-64 is the new range for the domestic currency as against the earlier 62 to the greenback.

The rupee has slid to cross the 64-levels yesterday from 62.19 on April 1, thereby becoming one of the worst performers among its emerging market peers.
According to a school of thought, depreciation in the rupee will help the country by ensuring that the exports are competitive.

A majority of the analysts expect the Reserve Bank to cut its key rates in the upcoming review on a cooldown in inflation lately.
Care Ratings said the REER (real effective exchange rate) justifies the ongoing slide in the currency.
"The withdrawal of FIIs from the debt market through selling has increased the supply of paper and lowered the prices thus leading to higher yields on GSecs," the report said. It can be recalled that FIIs had sold stocks and bonds worth over USD 2 billion since mid-April, following the MAT controversy.

It asked the corporates to pay more attention to their forex exposures, especially if they do not have a natural hedge as a weaker rupee can cause potential loss to them.
The agency said the sentiment has turned negative after FII outflow following the minimum alternate tax (MAT) controversy and added that the forwards are also increasing in the NDF (non-deliverable forward) market.