The rupee recovered 16 paise from its all-time low closing level to 87.43 against the US dollar in early trading on Friday, ahead of the Reserve Bank of India's monetary policy announcement.
Forex traders reported an overall negative bias in the rupee, with market participants expecting the RBI to cut rates by 25 basis points.
While a rate cut could help alleviate some of the pressure by improving liquidity and attracting foreign investment, it would also increase rupee supply, further weakening the currency and exacerbating depreciation pressures, they said.
At the interbank foreign exchange, the rupee opened at 87.57 against the US dollar and touched 87.43 in early trade, up 16 paise from the previous close.
On Thursday, the rupee fell 16 paise to its all-time low of 87.59 against the US dollar.
"As long as the liquidity deficit exists, the rupee will be under pressure. Furthermore, the CRR cut is putting pressure on the rupee.
"With current headwinds surpassing tailwinds and compounded by the RBI's rate cut expectations, the rupee is expected to trade at elevated levels between 87.20 and 87.70, with 87.20 acting as a support level," CR Forex Advisors MD Amit Pabari stated.
The RBI's Monetary Policy Committee (MPC) began its three-day meeting on Wednesday. The MPC's policy decision will be announced at 1000 hrs.
New RBI Governor Sanjay Malhotra, who is chairing his first Monetary Policy Committee (MPC) meeting, will announce the decision of the six-member panel on Friday morning, amid widespread expectations of a 25 basis point reduction in interest rates after nearly five years.
Meanwhile, the dollar index, which measures the greenback's strength against a basket of six currencies, was up 0.03 percent at 107.72.
Brent crude, the global oil benchmark, rose 0.50% to USD 74.66 per barrel in futures trading.
In the domestic equity market, the 30-share BSE Sensex was down 39.26 points, or 0.05 percent, at 78,018.90 points, while the Nifty was down 8.25 points, or 0.03%, at 23,595.10 points.
Foreign institutional investors (FIIs) sold equities worth Rs 3,549.95 crore in the capital markets on a net basis on Thursday, according to exchange data.
