Mumbai, Dec 7 (PTI) The rupee depreciated 25 paise to 82.75 against the US dollar in early trade on Wednesday, tracking muted domestic equities ahead of the Reserve Bank of India's monetary policy decision.

Forex traders said dollar demand in the overseas market and foreign fund outflows weighed on investor sentiments.

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At the interbank foreign exchange, the domestic unit opened at 82.74 against the dollar, then edged lower to 82.75, registering a loss of 25 paise over its previous close.

On Tuesday, the rupee declined by 65 paise to close at an over one-month low of 82.50 against the US dollar.

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Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.05 per cent to 105.63.

Brent crude futures, the global oil benchmark, advanced 0.09 per cent to USD 79.42 per barrel.

Forex traders said the Reserve Bank of India's monetary policy decision on Wednesday will be keenly watched by investors for further cues.

The Reserve Bank may opt for a lower rate increase of 25-35 basis points in lending rates amid retail inflation showing signs of moderation and the need to push growth, according to experts.

"The RBI monetary policy decision is due today. MPC is likely to hike repo rate by 35 bps to 6.25 per cent as core inflation still remains elevated sequentially," IFA Global Research Academy said in a note.

A bigger rate hike would also help maintain the differential with the US rates, support the forward premia in USD/INR and reduce the pressure on the rupee somewhat, it added.

In the domestic equity market, the 30-share BSE Sensex was trading 87.7 points or 0.14 per cent down at 62,538.66, and the broader NSE Nifty was lower by 31.90 points or 0.17 per cent at 18,610.85.

Foreign Institutional Investors (FIIs) were net sellers in capital markets as they offloaded shares worth Rs 635.35 crore on Tuesday, according to exchange data.

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