StanChart sees rupee weakening to 64.5 by June

The rupee will continue to weaken and may hit the 64.5 level against the dollar by June-end, foreign brokerage Standard Chartered has said.

The assessment is based on slump in exports, factoring in expectations of a US Fed rate hike by markets and seasonal issues.

"We were expecting a move in INR towards 64.5 by June-end and the recent price trend seems to validate our view," StanChart Managing Director and head for South Asia Macro Research, Samiran Chakraborty, told PTI over the weekend.

The rupee has been very volatile in the past few trading sessions, which is being attributed to a sell-off in equities triggered by worries over the impact of the Minimum Alternate Tax on FIIs.

The domestic currency shed Rs 1.20 over the last week to end at 63.56 against the greenback, making it the third consecutive week of a drop.

Chakraborty said a higher-than-expected March trade deficit with a very large decline in export growth has put the spotlight back on over-valuation of the currency.

The merchandise exports declined 21.06 per cent for March, which upset all calculations for the FY15 target.

This led to calls for supporting exports, which can get uncompetitive if the currency is stronger.

"Our sense is that the dollar cycle will get stronger in this quarter as markets start factoring in the possible rate hike in Fed.

The reaction might be happening before the Fed rate hike itself," Chakraborty said, adding that traditionally the April-June quarter leads to some weakness in the rupee.

He said that the ongoing depreciation will only correct the over-valuation and the Reserve Bank will ensure there is no "flare-up in depreciation" by intervening.

The Reserve Bank has a stated position of not intervening to protect the currency at a level, but has gone public with its view on intervening both with selling and buying to curb excessive volatility.

Between April 2014 and February 2015, it bought a net of USD 49.2 billion to reduce the volatility on account of higher inflows, which has taken the forex kitty to record highs.

The total forex reserves stood at USD 343.2 billion for the week ended April 18.

After depreciating to an all-time low of 68.85 against the dollar in August 2013 due to the high current account deficit and the US Fed's 'tantrums' of cutting the dollar infusion, the rupee recovered fast to gain the lost territory due to unconventional measures adopted by RBI and the government.

Some of those measures still continue.