The rupee may decline to a new lifetime low versus the US dollar if the Reserve Bank of India on Friday decides to opt for a smaller rate hike, a trader said.
The RBI is widely expected to raise the repo rate as it continues its battle to control inflation.
Economists, however, differ on the size of the rate hike that the RBI will deliver as the central banks aims to strike the right balance between inflation and growth.
The estimates range from 25-basis points rate hike to 50-basis points.
“We think there is a decent chance that the rupee will see a record low tomorrow,” a trader at a Mumbai-based private sector bank said. “A 50-basis hike will not do much for the rupee, while anything less than that will take the rupee well below 80.”
The rupee was trading at 79.51 per US dollar, 0.4% weaker on the day. The local currency hit a record low of 80.0650 on July 19.
Samir Lodha, a managing partner at fx advisory firm QuantArt Market Solutions, reckons that the rupee could fall “near to 80” if RBI hikes rates by 25-basis points and will be “broadly stable” in case of a 0.5% rate increase.
Mr Lodha and the private dealer reckon that rupee forward premiums were likely to move moderately higher following the RBI decision.