Rupee Dips Ahead of RBI Policy Decision Amid Strong Dollar

The Indian rupee weakened by 10 paise to 96.45 against the US dollar in early trade on Wednesday. This decline came ahead of the Reserve Bank of India's (RBI) monetary policy decision, which investors are eagerly awaiting for further guidance.

The rupee has been under pressure due to persistent foreign fund outflows from domestic equities and a strong US dollar, which is trading near multi-month highs above 102 on the DXY index. At the interbank foreign exchange, the rupee opened at 96.37 before falling to 96.45, down from its previous close of 96.35 on Tuesday.

Anil Kumar Bhansali, Head of Treasury at Finrex Treasury Advisors LLP, noted that the RBI is expected to raise rates by 25 basis points, with a slight possibility of a 50 basis point hike. The RBI may also increase the cash reserve ratio (CRR) by 1 percent to 4 percent to manage excess liquidity. Bhansali highlighted concerns over the rupee's recent 2 percent decline, driven by oil demand and foreign portfolio investor (FPI) demand for the US dollar.

The RBI is set to announce its bi-monthly monetary policy decision at 1000 hrs on Wednesday. Experts anticipate a rate hike after nearly three-and-a-half years, as inflation pressures rise due to the ongoing West Asia conflict. The last repo rate hike occurred in February 2023, raising it to 6.50 percent. The rate was kept unchanged through 2023-24 before beginning a rate-cut cycle in 2025, with the current policy repo rate at 5.25 percent.

Meanwhile, the dollar index, which measures the US dollar's strength against a basket of six currencies, was trading at 102.02, up 0.19 percent. Brent crude, the global oil benchmark, rose 0.91 percent to USD 101.50 per barrel in futures trade. On the domestic equity market, the Sensex dropped 460 points to 72,599.05, while the Nifty fell 164.80 points to 22,610.85. Foreign Institutional Investors (FIIs) sold equities worth Rs 2,961.30 crore on a net basis on Tuesday.