Rupee falls 10 paise to 96.45 against US dollar ahead of RBI monetary policy decision

The rupee weakened by 10 paise to 96.45 against the US dollar at the start of trading on Wednesday, in anticipation of the Reserve Bank of India's monetary policy decision. The currency has been under pressure due to consistent outflows of foreign funds from domestic equities and the strong US dollar which has reached near multi-month highs above 102 (DXY).

Investors are eagerly anticipating the RBI's monetary policy decision for further insights. The rupee opened at 96.37 at the interbank foreign exchange, then declined and settled at 96.45, a 10 paise drop from its prior close. On Tuesday, the rupee ended at 96.35 against the US dollar. The RBI is set to meet today, where it may raise rates by 25 basis points with a possibility of a 50 bps increase.

Additionally, the RBI might raise the CRR by 1 percent to 4 percent to manage the excess liquidity. Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP, anticipates that the RBI will address the falling rupee in its decision, which has depreciated over 2 percent in the past month. Factors such as oil demand and Foreign Portfolio Investor (FPI) demand for the US dollar are contributing to the rupee's decline.

The Reserve Bank of India will release its bi-monthly monetary policy decision at 1000 hours on Wednesday. Experts are expecting a rate hike following a three-and-a-half-year period as inflation pressures rise due to the ongoing conflict in the West Asia. The RBI last increased the repo rate in February 2023, raising it by 0.25 percent to 6.50 percent.

The rate has remained unchanged since then until 2023-24, before beginning a rate-cut cycle in 2025. Currently, the RBI's policy repo rate is at 5.25 percent. Meanwhile, the dollar index, which measures the strength of the greenback against a basket of six currencies, is trading at 102.02, up 0.19 percent. Brent crude, the global oil benchmark, has risen 0.91 percent to $101.50 per barrel in futures trade.

On the Indian equity market, the Sensex fell by 460 points to 72,599.05 in early trade, while the Nifty dropped 164.80 points to 22,610.85. Foreign Institutional Investors (FIIs) sold equities worth ₹2,961.30 crore on a net basis on Tuesday, as per exchange data.