Mumbai, Jun 6 (PTI) The rupee witnessed range-bound trading in the morning session on Friday, ahead of the Reserve Bank's monetary policy outcome.

Forex traders said market participants are keenly awaiting the outcome of the Reserve Bank of India’s monetary policy meeting for further cues.

The RBI’s rate-setting panel started its three-day brainstorming on monetary policy on Wednesday, and the outcome is scheduled to be announced in a short while.

At the interbank foreign exchange, the domestic unit witnessed heavy volatility. It opened at 85.91, registering a fall of 12 paise over its previous close. But soon pared the losses and saw an early high of 85.77 against the greenback.

On Thursday, the rupee snapped its two-day losing streak and closed 8 paise higher at 85.79 against the US dollar.

"With FPIs unclear in their flows into the country the rupee has been on the weakening side in the last few days," said Anil Kumar Bhansali, Head of Treasury and Executive Director Finrex Treasury Advisors LLP.

"We have the monetary policy in which the RBI is expected to cut rates by 25 bps. The narrowing interest rate differentials have been aiding in the weakening process of the rupee. For the day a move between 85.50 to 86.25 is expected with a close watch on RBI," Market participants are pricing in another interest rate cut from the Reserve Bank of India (RBI), buoyed by stable inflation figures.

The rupee’s future trajectory will largely depend on the RBI’s upcoming policy stance and any liquidity measures it introduces, they added.

Meanwhile, the dollar index, which gauges the greenback’s strength against a basket of six currencies, was trading higher by 0.03 per cent at 98.77.

Brent crude, the global oil benchmark, fell 0.26 per cent to USD 65.17 per barrel in futures trade.

On the domestic equity market front, the 30-share benchmark index Sensex was trading 227.18 points, or 0.28 per cent down to 81,214.86, while the Nifty was quoted 65.30 points or 0.26 per cent lower at 24,685.60.

Foreign institutional investors (FIIs) sold equities worth Rs 208.47 crore on a net basis on Thursday, according to exchange data. PTI DRR DR

Monetary policy decision shapes rupee volatility, with traders pricing easing and watching liquidity signals for direction. Expectations of an imminent Reserve Bank monetary policy decision, including a widely anticipated quarter-point interest rate reduction, have produced range-bound and volatile rupee trading; market participants attribute recent weakness to narrowing interest rate differentials and unclear foreign portfolio investor flows, and state the currency's future direction will depend on the Bank's policy stance and any liquidity measures it introduces.